In this paper, we show how stochastic optimisation and worst-case analysis can be used together in order to provide central banks with a straightforward tool for selecting a policy rule that limits worst-case outcomes while at the same time providing reasonably good performance on average. We...

Meyer (1999) has suggested that episodes of heightened uncertainty about the NAIRU may warrant a nonlinear policy response to changes in the unemployment rate. This paper offers a theoretical justification for such a nonlinear policy rule, and provides some empirical evidence on the relative...

In this paper, we examine the cost of insurance against model uncertainty for the Euro area considering four alternative reference models, all of which are used for policy-analysis at the ECB. We find that maximal insurance across this model range in terms of a Minimax policy comes at moderate...

Three methods have been developed by the authors for solving optimal experimentation problems. David Kendrick (1981, 2002, Ch.10) uses quadratic approximation of the value function and linear approximation of the equation of motion to simulate general optimal experimentation (active learning)...