Robust Versus Optimal Rules in Monetary Policy: A Note
11 Pages Posted: 15 Feb 2006
Date Written: June 2004
We provide a framework for analyzing the choice between optimal and robust monetary policy rules in the presence of paradigm uncertainty. We first discuss the conditions on uncertainty that render a robust rule preferable to an optimal rule. Second, we show how the degree of risk aversion of the policymaker increases the region in which the robust rule is preferred.
Keywords: Monetary Policy, Model Uncertainty, Policy Rules
JEL Classification: E52, E58, C70
Suggested Citation: Suggested Citation