In the 2-1/2 years between March, 1996 and September, 1998 the civilian unemployment rate in the United States dropped a full percentage point, the 12-month CPI inflation rate fell nearly 1-1/2 percentage points, a major crisis developed in emerging economies, and commodity prices collapsed....

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...

The costs of disinflation are explored using the Board's new sticky-price rational expectations macroeconometric model of the U.S. economy, FRB/US. The model nests both model consistent and `restricted-information rational' expectations. Monetary policy is governed by interest-rate reaction...

We examine learning, model misspecification, and robust policy responses to misspecification in a quasi-real-time environment. The laboratory for the analysis is the Sargent (1999) explanation for the origins of inflation in the 1970's and the subsequent disinflation. Three robust policy rules...

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...

In the late 1960s and into the 1970s, the United States experienced a burst of inflation the origins of which seemed hard to uncover. This paper advances the idea that the Fed simply got the model wrong. We assume that the true model of the economy is a variant of the standard New Keynesian...

In recent years, the learnability of rational expectations equilibria (REE) and determinacy of economic structures have rightfully joined the usual performance criteria among the sought after goals of policy design. And while some contributions to the literature (for example Bullard and Mitra...

In his monograph The Conquest of American Inflation, Sargent (1999) points out the perils of econometric policy evaluation of the Theil-Tinbergen tradition wherein one estimates a reduced form econometric model of the economy and subjects it to control. If the model is misspecified, as is...