It has been noted that empirical monetary policy reaction functions show smaller impact coefficients and more persistence than reaction functions that are computed from policy optimization experiments using conventional macroeconomic models. Papers by Rudebusch, Smets and others attempt to...

This paper explores Knightian model uncertainty about dynamic misspecification as a possible explanation of the considerable difference between estimated interest rate rules and optimal feedback descriptions of monetary policy. In the literature on robust control, Knightian uncertainty about a...