Robust Versus Optimal Rules in Monetary Policy: A Note

Publication Date:

June 1, 2004

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

We provide a framework for analyzing the choice between optimal and robust monetary policy rules in the presence of paradigm uncertainty. We first discuss the conditions on uncertainty that render a robust rule preferable to an optimal rule. Second, we show how the degree of risk aversion of the policymaker increases the region in which the robust rule is preferred.

Series:

Working Paper No. 2004/096

Subject:

Banking Econometric models

English

Publication Date:

June 1, 2004

ISBN/ISSN:

9781451851946/1018-5941

Stock No:

WPIEA0962004

Pages:

10

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