Imperfect knowledge and the pitfalls of optimal control monetary policy

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dc.contributor.authorOrphanides, Athanasios 1965-
dc.contributor.authorWilliamson, John
dc.date.accessioned2019-11-01T00:04:32Z
dc.date.available2019-11-01T00:04:32Z
dc.date.issued2009
dc.descriptionSixty years ago, Milton Friedman questioned the usefulness of the optimal control approach because of policymakers’ imperfect knowledge of the economy and favored instead a simple rule approach to monetary policy (1947, 1948). These are still live issues, despite the development of powerful techniques to derive and analyze optimal control policies, which central banks use in their large-scale models (see Svensson and Woodford, 2003, Woodford, 2003, Giannoni and Woodford, 2005, Svensson and Tetlow, 2005). Although the optimal control approach provides valuable insights, it also presents problems. In particular, because it assumes a single correctly specified reference model, it ignores important sources of uncertainty about the economy that monetary policymakers face. Robust control methods of the type analyzed by Hansen and Sargent (2007) extend the standard optimal control approach to allow for unspecified model uncertainty, however, these methods are designed for relatively modest deviations from the reference model
dc.file.nameBCCh-sbc-v13-p115_144
dc.format.pdf
dc.format.extentSecciĂłn o Parte de un Documento
dc.format.mediump. 115-144
dc.identifier.isbn978-956-7421-32-9
dc.identifier.urihttps://hdl.handle.net/20.500.12580/3748
dc.language.isoeng
dc.publisherBanco Central de Chile
dc.relation.ispartofSeries on Central Banking, Analysis, and Economic Policies, no. 13
dc.rightsAttribution-NonCommercial-NoDerivs 3.0 Chile*
dc.rights.urihttp://creativecommons.org/licenses/by-nc-nd/3.0/cl/*
dc.subjectPOLÍTICA MONETARIAes_ES
dc.subjectBANCOS CENTRALESes_ES
dc.titleImperfect knowledge and the pitfalls of optimal control monetary policy
dc.type.docArtĂ­culo

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