Robust Versus Optimal Rules in Monetary Policy: A Note

11 Pages Posted: 15 Feb 2006

Date Written: June 2004

Abstract

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

Demertzis, Maria and Tieman, Alexander F., Robust Versus Optimal Rules in Monetary Policy: A Note (June 2004). IMF Working Paper, Vol. , pp. 1-11, 2004. Available at SSRN: https://ssrn.com/abstract=878920

Maria Demertzis (Contact Author)

Bruegel ( email )

Rue de la Charité 33
B-1210 Brussels Belgium, 1210
Belgium

Alexander F. Tieman

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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