WOODFORD'S APPROACH TO ROBUST POLICY ANALYSIS IN A LINEAR-QUADRATIC FRAMEWORK
This paper extends Woodford's approach to the robustly optimal monetary policy to a general linear quadratic framework. We provide algorithms to solve for a time-invariant linear robustly optimal policy in a timeless perspective and for a time-invariant linear Markov perfect equilibrium under d...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Cambridge University Press
2019
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| Subjects: | |
| Online Access: | View Fulltext in Publisher |
| Summary: | This paper extends Woodford's approach to the robustly optimal monetary policy to a general linear quadratic framework. We provide algorithms to solve for a time-invariant linear robustly optimal policy in a timeless perspective and for a time-invariant linear Markov perfect equilibrium under discretion. We apply our methods to a New Keynesian model of monetary policy with persistent cost-push shocks and inflation persistence. We find that the robustly optimal commitment inflation is less responsive to a cost-push shock when the shock is more persistent and that the robustly optimal discretionary policy is more responsive to lagged inflation when inflation is more persistent. Copyright © Cambridge University Press 2018. |
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| ISBN: | 13651005 (ISSN) |
| DOI: | 10.1017/S1365100517000499 |