TY  - JOUR
AU  - Onatski,Alexei
AU  - Stock,James H.
TI  - Robust Monetary Policy Under Model Uncertainty in a Small Model of the U.S. Economy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7490
PY  - 2000
Y2  - January 2000
UR  - http://www.nber.org/papers/w7490
L1  - http://www.nber.org/papers/w7490.pdf
N1  - Author contact info:
Alexei Onatski
Department of Economics
University of Cambridge
Cambridge, UK
E-Mail: ao319@cam.ac.uk

James H. Stock
Department of Economics
Harvard University
Littauer Center M27
Cambridge, MA 02138
Tel: 617/496-0502
Fax: 617/495-7730
E-Mail: James_Stock@harvard.edu
AB  - This paper examines monetary policy in Rudebusch and Svensson's (1999) two equation macroeconomic model when the policymaker recognizes that the model is an approximation and is uncertain about the quality of that approximation.  It is argued that the minimax approach of robust control provides a general and tractable alternative to the conventional Bayesian decision theoretic approach.  Robust control techniques are used to construct robust monetary policies.  In most (but not all) cases, these robust policies are more aggressive than the optimal policies absent model uncertainty.  The specific robust policies depend strongly on the formation of model uncertainty  used, and we make some suggestions about which formulation is most relevant for monetary policy applications.
ER  -