Robustly optimal monetary policy with near-rational expectations

Michael Woodford

No 2007/12, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: The paper considers optimal monetary stabilization policy in a forward-looking model, when the central bank recognizes that private-sector expectations need not be precisely modelconsistent, and wishes to choose a policy that will be as good as possible in the case of any beliefs that are close enough to model-consistency. It is found that commitment continues to be important for optimal policy, that the optimal long-run inflation target is unaffected by the degree of potential distortion of beliefs, and that optimal policy is even more historydependent than if rational expectations are assumed.

Keywords: Optimal Monetary Policy; Commitment; History-Dependent Policy (search for similar items in EconPapers)
JEL-codes: E42 E52 E58 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (16)

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Related works:
Journal Article: Robustly Optimal Monetary Policy with Near-Rational Expectations (2010)
Working Paper: Robustly Optimal Monetary Policy with Near Rational Expectations (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:200712

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