Robust monetary rules under unstructured model uncertainty

This paper revisits a widely adopted approach to robust decision making developed by Hansen and Sargent, 2003, Hansen and Sargent, 2008-henceforth HS-and applies it to monetary policy design in the face of model uncertainty. We pay particular attention to two issues: first, we distinguish three possible forms of the implied game between malign nature and the policymaker in the HS procedure each leading to a different robust and approximating equilibria. Second, we impose the zero lower bound (ZLB) constraint on the nominal interest rate. We show that the ZLB constraint has serious consequences for a policymaker pursuing HS-type robustness, especially when accompanied by an inability to commit.