Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/209882
Authors: 
Ben-Haim, Yakov
Akram, Q. Farooq
Eitrheim, Øyvind
Year of Publication: 
2007
Series/Report no.: 
Working Paper No. 2007/6
Publisher: 
Norges Bank, Oslo
Abstract: 
We study monetary policy under uncertainty. A policy which ameliorates a worst case may differ from a policy which maximizes robustness and satisfices the performance. The former strategy is min-maxing and the latter strategy is robust-satisficing. We show an "observational equivalence" between robust-satisficing and min-maxing. However, there remains a "behavioral difference" between robust-satisficing and min-maxing. Policy makers often wish to respect specified bounds on target variables. The robust-satisficing policy can be more (and is never less) robust, and hence more dependable, than the min-max policy. We illustrate this in an empirical example where monetary policy making amounts to selecting the coefficients of a Taylor-type interest rate rule, subject to uncertainty in the persistence of shocks to inflation.
Subjects: 
Knightian uncertainty
robustness
info-gap decision theory
monetary policy
min-max policy
robust-satisficing policy
JEL: 
E52
E58
Persistent Identifier of the first edition: 
ISBN: 
978-82-7553-398-0
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.