Robust Monetary Policy in the New-Keynesian Framework

@inproceedings{Leitemo2004RobustMP,
  title={Robust Monetary Policy in the New-Keynesian Framework},
  author={Kai Leitemo and U. -B. S{\"o}derstr{\"o}m},
  year={2004}
}
We study the effect of model uncertainty in a New Keynesian open-economy model using robust control techniques. Due to the simple model structure, we are able to solve a version of the robust control problem analytically, and we analyze the separate effects of uncertainty concerning the determination of inflation, output and the exchange rate. We show that an increased central bank preference for robustness can make monetary policy more aggressive or more cautious, depending on the type of… CONTINUE READING
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