EconPapers    
Economics at your fingertips  
 

A positive theory of monetary policy and robust control

Juha Kilponen ()

Macroeconomics from University Library of Munich, Germany

Abstract: This paper applies the robust control approach to a simple positive theory of monetary policy, when the central bank’s model of the economy is subject to misspecifications. It is shown that a central bank should react more aggressively to supply shocks when the model misspecifications grow larger. Moreover, the model misspecifications aggravate the inflation bias and a trade-off between output stabilisation and inflation worsens when the uncertainty surrounding the central bank’s model increases. This implies that the larger the model misspecifications are, the more inflation-averse the central bank should be.

Keywords: risk-sensitivity; robust control theory; monetary policy; Brainard conservatism; model uncertainty (search for similar items in EconPapers)
JEL-codes: E58 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2004-04-19
New Economics Papers: this item is included in nep-mon
Note: Type of Document - pdf; pages: 26
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/0404/0404014.pdf (application/pdf)

Related works:
Working Paper: A positive theory of monetary policy and robust control (2004) Downloads
Working Paper: A Positive theory of monetary policy and robust control (2003) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:0404014

Access Statistics for this paper

More papers in Macroeconomics from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ().

 
Page updated 2022-10-17
Handle: RePEc:wpa:wuwpma:0404014