Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/44955
Authors: 
Gerke, Rafael
Hammermann, Felix
Year of Publication: 
2011
Series/Report no.: 
Discussion Paper Series 1: Economic Studies 2011,02
Abstract: 
We use robust control to study how a central bank in an economy with imperfect interest rate pass-through conducts monetary policy if it fears that its model could be misspecified. The effects of the central bank's concern for robustness can be summarised as follows. First, depending on the shock, robust optimal monetary policy under commitment responds either more cautiously or more aggressively. Second, such robustness comes at a cost: the central bank dampens volatility in the inflation rate preemptively, but accepts higher volatility in the output gap and the loan rate. Third, if the central bank faces uncertainty only in the IS equation or the loan rate equation, the robust policy shifts its concern for stabilisation away from inflation.
Subjects: 
optimal monetary policy
commitment
model uncertainty
JEL: 
E44
E58
E32
ISBN: 
978-3-86558-685-8
Document Type: 
Working Paper

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