Autonomous demand shock affects consumption spending. Variation in consumption spending contributes to the volatility in aggregate demand. As the investor is risk averse, volatility of aggregate demand reduces investment. Government injects monetary noise to reduce the volatility in aggregate...

Several recent papers are devoted to the examination of the central banker's behaviour in an uncertain economic environment. This paper proposes, from a central banker's point of view, a synthesis of the main sources of uncertainty as well as an illustration of their effects within an analytical...

This paper studies the design of optimal time-consistent monetary policy in an economy where the planner trusts its own model, while a representative household uses a set of alternative probability distributions governing the evolution of the exogenous state of the economy. In such environments,...

The purpose of this paper is to make a quantitative contribution to the inflation versus price level targeting debate. It considers a policy-maker that can set policy either through an inflation targeting rule or a price level targeting rule to minimize a quadratic loss function using the actual...

This paper analyzes the behavior of a central bank under strong (quot;Knightianquot;) uncertainty when the short run trade-off between output and inflation is represented by the Sticky Information Phillips Curve proposed by Mankiw and Reis (2002). By solving the robust control problem...

Using traditional monetary policy measures, Bekaert et al. (2013) show that a lax monetary policy decreases both risk aversion and uncertainty and that positive shocks to risk aversion and uncertainty induce monetary policy changes. We extend their analysis for the pre-crisis period to the...