Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5098823 | Journal of Economic Dynamics and Control | 2013 | 16 Pages |
Abstract
This paper studies how the central bank's concerns about model uncertainty affect the design of monetary policy in the presence of wealth effects. If all exogenous disturbances are white noises, increasing the preference for robustness or the size of wealth effects implies more aggressive policy responses to cost shocks. Under persistent shocks, numerical simulations show that increasing the preference for robustness continues to imply more aggressive responses to cost shocks. By contrast, stronger wealth effects lead to less aggressive responses, dampening the effect of model uncertainty on interest rate dynamics.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Eurilton Araújo,