Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/25212 
Year of Publication: 
2007
Series/Report no.: 
SFB 649 Discussion Paper No. 2007,040
Publisher: 
Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk, Berlin
Abstract: 
In this paper we propose a novel methodology to analyze optimal policies under model uncertainty in micro-founded macroeconomic models. As an application we assess the relevant sources of uncertainty for the optimal conduct of monetary policy within (parameter uncertainty) and across models (specification uncertainty) using EU 13 data. Parameter uncertainty matters only if the zero bound on interest rates is explicitly taken into account. In any case, optimal monetary policy is highly sensitive with respect to specification uncertainty implying substantial welfare gains of a robust-optimal rule that incorporates this risk.
Subjects: 
Optimal monetary policy
model uncertainty
Bayesian model estimation
JEL: 
E32
C51
E52
Document Type: 
Working Paper

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