The Performance of Forecast-Based Monetary Policy Rules Under Model Uncertainty
We investigate the performance of forecast-based monetary policy rules using five macroeconomic models that reflect a wide range of views on aggregate dynamics. We identify the key characteristics of rules that are robust to model uncertainty; such rules respond to the one-year-ahead inflation forecast and to the current output gap and incorporate a substantial degree of policy inertia. In contrast, rules with longer forecast horizons are less robust and are prone to generating indeterminacy. Finally, we identify a robust benchmark rule that performs very well in all five models over a wide range of policy preferences.
Year of publication: |
2003
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Authors: | Levin, Andrew ; Wieland, Volker ; Williams, John C. |
Published in: |
American Economic Review. - American Economic Association - AEA. - Vol. 93.2003, 3, p. 622-645
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Publisher: |
American Economic Association - AEA |
Saved in:
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