Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/209873
Authors: 
Akram, Q. Farooq
Ben-Haim, Yakov
Eitrheim, Øyvind
Year of Publication: 
2006
Series/Report no.: 
Working Paper No. 2006/10
Abstract: 
We employ information-gap decision theory to derive a robust monetary policy response to Knightian parameter uncertainty. This approach provides a quantitative answer to the question: For a specified policy, how much can our models and data err or vary, without rendering the outcome of that policy unacceptable to a policymaker? For a given acceptable level of performance, the policymaker selects the policy that delivers acceptable performance under the greatest range of uncertainty. We show that such information-gap robustness is a proxy for probability of policy success. Hence, policies that are likely to succeed can be identified without knowing the probability distribution. We adopt this approach to investigate empirically the robust monetary policy response to a supply shock with an uncertain degree of persistence.
Subjects: 
Knightian uncertainty
monetary policy
info-gap decision theory
JEL: 
E31
E52
E58
E61
Persistent Identifier of the first edition: 
ISBN: 
82-7553-365-1
Creative Commons License: 
https://creativecommons.org/licenses/by-nc-nd/4.0/deed.no
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.