TY  - JOUR
AU  - Onatski,Alexei
AU  - Williams,Noah
TI  - Modeling Model Uncertainty
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9566
PY  - 2003
Y2  - March 2003
UR  - http://www.nber.org/papers/w9566
L1  - http://www.nber.org/papers/w9566.pdf
N1  - Author contact info:
Alexei Onatski
Department of Economics
University of Cambridge
Cambridge, UK
E-Mail: ao319@cam.ac.uk

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  - Recently there has been a great deal of interest in studying monetary policy under model uncertainty. We point out that different assumptions about the uncertainty may result in drastically different  robust' policy recommendations. Therefore, we develop new methods to analyze uncertainty about the parameters of a model, the lag specification, the serial correlation of shocks, and the effects of real time data in one coherent structure. We consider both parametric and nonparametric specifications of this structure and use them to estimate the uncertainty in a small model of the US economy. We then use our estimates to compute robust Bayesian and minimax monetary policy rules, which are designed to perform well in the face of uncertainty. Our results suggest that the aggressiveness recently found in robust policy rules is likely to be caused by overemphasizing uncertainty about economic dynamics at low frequencies.
ER  -