Optimal Policy and Taylor Rule Cross-Checking Under Parameter Uncertainty
SAFE Working Paper No. 30
35 Pages Posted: 5 Sep 2013 Last revised: 26 Sep 2013
Date Written: September 26, 2013
Abstract
We examine whether the robustifying nature of Taylor rule cross-checking under model uncertainty carries over to the case of parameter uncertainty. Adjusting monetary policy based on this kind of cross-checking can improve the outcome for the monetary authority. This, however, crucially depends on the relative welfare weight that is attached to the output gap and also the degree of monetary policy commitment. We find that Taylor rule cross-checking is on average able to improve losses when the monetary authority only moderately cares about output stabilization and when policy is set in a discretionary way.
Keywords: Optimal monetary policy, parameter uncertainty, Taylor rule
JEL Classification: E47, E52, E58
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
The Future of Monetary Aggregates in Monetary Policy Analysis
-
Global Monetary Policy Shocks in the G5: A Svar Approach
By Joao Miguel Sousa and Andrea Zaghini
-
Putting 'M' Back in Monetary Policy
By Eric M. Leeper and Jennifer E. Roush
-
Putting 'M' Back in Monetary Policy
By Eric M. Leeper and Jennifer E. Roush
-
A Money Demand System for Euro Area M3
By Claus Brand and Nuno Cassola