TY  - JOUR
AU  - Svensson,Lars E.O.
AU  - Williams,Noah
TI  - Optimal Monetary Policy under Uncertainty in DSGE Models: A Markov Jump-Linear-Quadratic Approach
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13892
PY  - 2008
Y2  - March 2008
UR  - http://www.nber.org/papers/w13892
L1  - http://www.nber.org/papers/w13892.pdf
N1  - Author contact info:
Lars E.O. Svensson
Sveriges Riksbank
SE-103 37 Stockholm
SWEDEN
Tel: +46 8 787 0107
Fax: +46 8 21 0531
E-Mail: lars.svensson@iies.su.se

Noah M. Williams
Department of Economics
1180 Observatory Drive
University of Wisconsin
Madison, WI 53706-1393
Tel: 608/263-3864
E-Mail: nmwilliams@wisc.edu
AB  - We study the design of optimal monetary policy under uncertainty in a dynamic stochastic general equilibrium models. We use a Markov jump-linear-quadratic (MJLQ) approach to study policy design, approximating the uncertainty by different discrete modes in a Markov chain, and by taking mode-dependent linear-quadratic approximations of the underlying model. This allows us to apply a powerful methodology with convenient solution algorithms that we have developed. We apply our methods to a benchmark New Keynesian model, analyzing how policy is affected by uncertainty, and how learning and active experimentation affect policy and losses.
ER  -