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Optimal policy and taylor rule cross-checking under parameter uncertainty

Dirk Bursian and Markus Roth ()

No 30, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: We examine whether the robustifying nature of Taylor rule cross-checking under model uncertainty carries over to the case of parameter uncertainty. Adjusting monetary policy based on this kind of cross-checking can improve the outcome for the monetary authority. This, however, crucially depends on the relative welfare weight that is attached to the output gap and also the degree of monetary policy commitment. We find that Taylor rule cross-checking is on average able to improve losses when the monetary authority only moderately cares about output stabilization and when policy is set in a discretionary way.

Keywords: Optimal monetary policy; parameter uncertainty; Taylor rule (search for similar items in EconPapers)
JEL-codes: E47 E52 E58 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Related works:
Journal Article: Optimal policy and Taylor rule cross-checking under parameter uncertainty (2014) Downloads
Working Paper: Taylor rule cross-checking and selective monetary policy adjustment (2012) Downloads
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