2005 Reports
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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More About This Work
- Academic Units
- Economics
- Publisher
- Department of Economics, Columbia University
- Series
- Department of Economics Discussion Papers, 0506-13
- Published Here
- March 25, 2011
Notes
December 2005