The Performance of Forecast-Based Monetary Policy Rules Under Model Uncertainty

Abstract

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Robustifying learnability

“…This convergence property gave a considerable shot in the arm to rational 6 Levin et al [29] and Batini and Pearlman [1] study the robustness properties of different types of inflation-forecast based rules for their stability and determinacy properties. expectations applications since proponents had an answer to the question "how could people come to have rational expectations?"…”

“…Among the many, more recent references in this large literature are Sack [40], Orphanides et al [38], Soderstrom [42] and Ehrmann and Smets [16]. 2 See, e.g., Levin et al [28] and [29]. 3 Hansen and Sargent [26] and [27], Tetlow and von zur Muehlen [46] and Coenen [13].…”

A quantitative exploration of the opportunistic approach to disinflation

“…However, recent research on robust monetary policy rules in a variety of models (including an earlier version of this model) suggests that optimized simple rules that respond to a few key variables tend to be substantially more robust to model uncertainty than complicated, fully-optimal rules that are fine-tuned to a specific model (cf. the studies in Taylor (1999), in particular Levin, Wieland and Williams (1999), and Levin, Wieland and Williams (2003)). 8 For this reason, we focus on the rules in section 2, which contain 8 The earlier version of our model is listed as the MSR model in these studies.…”

On the Relevance of Monetary Aggregates in Monetary Policy Models

“…37 Each of the three markets -goods market, labor market, and money market -has to be in equilibrium. In the following, it will be analyzed whether the macroeconomic equilibrium path converges to the steady-state, or whether the economy gets on an explosive path.…”