2010 Articles
Robustly Optimal Monetary Policy with Near-Rational Expectations
The paper considers optimal monetary stabilization policy in a forward-looking model, when the central bank recognizes that private sector expectations need not be precisely model-consistent, and wishes to choose a policy that will be as good as possible in the case of any beliefs that are close enough to model-consistency. It is found that commitment continues to be important for optimal policy, that the optimal long-run inflation target is unaffected by the degree of potential distortion of beliefs, and that optimal policy is even more history-dependent than if rational expectations are assumed.
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Also Published In
- Title
- American Economic Review
- DOI
- https://doi.org/10.1257/aer.100.1.274
More About This Work
- Academic Units
- Economics
- Publisher
- American Economic Association
- Published Here
- November 21, 2013