This paper studies the behavior of a central bank that seeks to conduct policy optimally while having imperfect credibility and harboring doubts about its model. Taking the Smets–Wouters model as the central bank׳s approximating model, the paper׳s main findings are as follows. First, a...

Robust control allows policymakers to formulate policies that guard against model misspecification. The principal tools used to solve robust control problems are state-space methods [see Hansen, L.P., Sargent T.J., 2008. Robustness. Princeton University Press; Giordani, P., Söderlind, P., 2004....