Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5099319 | Journal of Economic Dynamics and Control | 2011 | 27 Pages |
Abstract
This paper undertakes a Bayesian analysis of optimal monetary policy for the U.K. We estimate a suite of monetary-policy models that include both forward- and backward-looking representations as well as large- and small-scale models. We find an optimal simple Taylor-type rule that accounts for both model and parameter uncertainty. For the most part, backward-looking models are highly fault tolerant with respect to policies optimized for forward-looking representations, while forward-looking models have low fault tolerance with respect to policies optimized for backward-looking representations. In addition, backward-looking models often have lower posterior probabilities than forward-looking models. Bayesian policies therefore have characteristics suitable for inflation and output stabilization in forward-looking models.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Timothy Cogley, Bianca De Paoli, Christian Matthes, Kalin Nikolov, Tony Yates,