Robust Control with Commitment: A Modification to Hansen-Sargent

Abstract:     
This paper studies robust control problems when policy is set with commitment. One contribution of the paper is to articulate an approximating equilibrium that differs importantly from that developed in Hansen and Sargent (2003). The paper illustrates how the proposed approximating equilibrium differs from Hansen-Sargent in the context of two New Keynesian business cycle models. A further contribution of the paper is to show that once misspecification is acknowledged commitment is no longer necessarily superior to discretion.

Number of Pages in PDF File: 24

Keywords: Robust Control, Commitment

JEL Classification: E52, C61, C73

working papers series