We discuss how to solve infinite-horizon optimal control problems with recursive preferences à la Hansen and Sargent (1995) when both backward and forward-looking variables enter into the law of motion regulating the system dynamics. With our analysis we establish: 1) under which conditions the...

A huge literature analyzes the performance of simple rules in closed-economy models when the policy-maker observes only a noisy measure of the state of the economy. This paper extends the analysis to a small-open economy new keynesian model. Passing from a closed-economy model to an open-economy...

This paper derives optimal robust monetary policy in a standard microfounded new Keynesian model with uncertainty about the degree of price stickiness and the autocorrelation of the cost-push shock. The uncertain degree of price stickiness spills over to the endogenous objective function pursued...

What is the welfare loss arising from uncertainty about true policy targets? We quantify these effects in a DSGE model where private agents are unable to distinguish between temporary shocks to potential output and to the inßation target. Agents use optimal Þltering techniques to construct...