A central tenet of inflation targeting is that establishing and maintaining well-anchored inflation expectations are essential. In this paper, we reexamine the role of key elements of the inflation targeting framework towards this end, in the context of an economy where economic agents have an...

Robust control allows policymakers to formulate policies that guard against model misspecification. The principal tools used to solve robust control problems are state-space methods (see Hansen and Sargent 2006 and Giordani and Soderlind 2004). In this paper we show that the structural-form...

This article assesses the importance of the zero lower bound on nominal interest rates for the conduct of monetary policy. The article employs a small, forward-looking model developed by Fuhrer and Moore. The model is simulated under several policy rules that involve either high or low inflation...

This paper examines the robustness characteristics of optimal control policies derived under the assumption of rational expectations to alternative models of expectations formation and uncertainty about the natural rates of interest and unemployment. We assume that agents have imperfect...

The literature on optimal monetary policy typically makes three major assumptions: (1) policymakers' preferences are quadratic, (2) the economy is linear, and (3) stochastic shocks and policymakers' prior beliefs about unobserved variables are normally distributed. This paper relaxes the third...

This paper estimates two optimization-based sticky-price New Keynesian models and assesses how well they describe U.S. output, inflation, and interest rate dynamics. We consider models in which either internal habit formation influence consumption behavior, and in which Calvo-pricing and...

We examine the performance and robustness of monetary policy rules when the central bank and the public have imperfect knowledge of the economy and continuously update their estimates of model parameters. We find that versions of the Taylor rule calibrated to perform well under rational...

The literature on robust monetary policy rules has largely focused on the case in which the policymaker has a single reference model while the true economy lies within a specified neighborhood of the reference model. In this paper, we show that such rules may perform very poorly in the more...