Robust Control in a Sticky Information Economy
34 Pages Posted: 7 Nov 2008
Date Written: April 1, 2007
This paper analyzes the behavior of a central bank under strong (Knightian) uncertainty when the short run trade-off between output and inflation is represented by the Sticky Information Phillips Curve recently proposed by Mankiw and Reis (2002). By solving the robust control problem analytically, this paper elucidates the economic mechanisms at play in a sticky information economy and shows how and why the robust monetary policy in this economy differs from the optimal one identified by Ball, Mankiw and Reis (2005).
Keywords: Robust control, sticky information, minmax policies
JEL Classification: D81, E52, E58
Suggested Citation: Suggested Citation