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Robust Monetary Policy in the New-Keynesian Framework

Leitemo, Kai; Söderström, Ulf - C.E.P.R. Discussion Papers - 2004

We study the effects of model uncertainty in a simple New-Keynesian model using robust control techniques. Due to the simple model structure, we are able to find closed-form solutions for the robust control problem, analysing both instrument rules and targeting rules under different timing...

Persistent link: https://www.econbiz.de/10005498037

Robust Monetary Policy in a Small Open Economy

Leitemo, Kai; Söderström, Ulf - C.E.P.R. Discussion Papers - 2005

This paper studies how a central bank’s preference for robustness against model misspecification affects the design of monetary policy in a New-Keynesian model of a small open economy. Due to the simple model structure, we are able to solve analytically for the optimal robust policy rule, and...

Persistent link: https://www.econbiz.de/10005791942

Monetary Policy in a Small Open Economy with a Preference for Robustness

Dennis, Richard; Leitemo, Kai; Söderström, Ulf - C.E.P.R. Discussion Papers - 2007

We use robust control techniques to study the effects of model uncertainty on monetary policy in an estimated, semi-structural, small-open-economy model of the U.K. Compared to the closed economy, the presence of an exchange rate channel for monetary policy not only produces new trade-offs for...

Persistent link: https://www.econbiz.de/10005136758

Monetary Policy Mistakes and the Evolution of Inflation Expectations

Orphanides, Athanasios; Williams, John C - C.E.P.R. Discussion Papers - 2010

What monetary policy framework, if adopted by the Federal Reserve, would have avoided the Great Inflation of the 1960s and 1970s? We use counterfactual simulations of an estimated model of the U.S. economy to evaluate alternative monetary policy strategies. We show that policies constructed...

Persistent link: https://www.econbiz.de/10008468541

Parameter Instability, Model Uncertainty and the Choice of Monetary Policy

Favero, Carlo A.; Milani, Fabio - C.E.P.R. Discussion Papers - 2005

This paper starts from the observation that parameter instability and model uncertainty are relevant problems for the analysis of monetary policy in small macroeconomic models. We propose to deal with these two problems by implementing a novel ‘thick recursive modelling’ approach. At each...

Persistent link: https://www.econbiz.de/10005498117

A New Comparative Approach to Macroeconomic Modeling and Policy Analysis

Cwik, Tobias; Mueller, Gernot; Schmidt, Sebastian; … - C.E.P.R. Discussion Papers - 2012

In the aftermath of the global financial crisis, the state of macroeconomic modeling and the use of macroeconomic models in policy analysis has come under heavy criticism. Macroeconomists in academia and policy institutions have been blamed for relying too much on a particular class of...

Persistent link: https://www.econbiz.de/10011083870

Complexity and Monetary Policy

Orphanides, Athanasios; Wieland, Volker - C.E.P.R. Discussion Papers - 2012

The complexity resulting from intertwined uncertainties regarding model misspecification and mismeasurement of the state of the economy defines the monetary policy landscape. Using the euro area as laboratory this paper explores the design of robust policy guides aiming to maintain stability in...

Persistent link: https://www.econbiz.de/10011084255

Hyperbolic Discounting and Positive Optimal Inflation

Graham, Liam; Snower, Dennis J. - C.E.P.R. Discussion Papers - 2011

The Friedman rule states that steady-state welfare is maximized when there is deflation at the real rate of interest. Recent work by Khan et al. (2003) uses a richer model but still finds deflation optimal. In an otherwise standard new Keynesian model we show that, if households have hyperbolic...

Persistent link: https://www.econbiz.de/10009643503

The Central Banker as a Risk Manager: Estimating the Federal Reserve's Preferences under Greenspan

Kilian, Lutz; Manganelli, Simone - C.E.P.R. Discussion Papers - 2007

Motivated by policy statements of central bankers, we propose to regard the central banker as a risk manager who aims … of risk management that may be used to quantify the risks of failing to attain that objective. Risk measures inherently … assumption of quadratic symmetric preferences, while being congruent with a risk management model. We show how the parameters of …

Persistent link: https://www.econbiz.de/10005791846

The Central Banker as a Risk Manager: Quantifying and Forecasting Inflation Risks

Kilian, Lutz; Manganelli, Simone - C.E.P.R. Discussion Papers - 2003

situation poses to price stability. We propose to regard the central banker as a risk manager who aims to contain inflation … within pre-specified bounds. We develop formal tools of risk management that may be used to quantify and forecast the risks … of failing to attain that objective. We illustrate the use of these risk measures in practice. First, we show how to …

Persistent link: https://www.econbiz.de/10005123620