TY  - JOUR
AU  - Giannoni,Marc
TI  - Robust Optimal Policy in a Forward-Looking Model with Parameter and Shock Uncertainty
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11942
PY  - 2006
Y2  - January 2006
UR  - http://www.nber.org/papers/w11942
L1  - http://www.nber.org/papers/w11942.pdf
N1  - Author contact info:
Marc Giannoni
Federal Reserve Bank of New York
Macroeconomic & Monetary Studies Function
Research and Statistics Group
33 Liberty Street
New York, NY 10045-0001
Tel: 212-720-6518
Fax: 212-720-1844
E-Mail: mg2190@columbia.edu
AB  - This paper characterizes a robust optimal policy rule in a simple forward-looking model, when the policymaker faces uncertainty about model parameters and shock processes. We show that the robust optimal policy rule is likely to involve a stronger response of the interest rate to fluctuations in inflation and the output gap than is the case in the absence of uncertainty. Thus parameter uncertainty alone does not necessarily justify a small response of monetary policy to perturbations. However uncertainty may amplify the degree of "super-inertia" required by optimal monetary policy. We finally discuss the sensitivity of the results to alternative assumptions.
ER  -