Robust monetary policy with misspeci"ed models: Does model uncertainty always call for attenuated policy?


This paper explores Knightian model uncertainty as a possible explanation of the considerable di!erence between estimated interest rate rules and optimal feedback descriptions of monetary policy. We focus on two types of uncertainty: (i) unstructured model uncertainty re#ected in additive shock error processes that result from omittedvariable misspeci… (More)


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