Abstract
We examine whether the robustifying nature of Taylor rule cross-checking under model uncertainty carries over to the case of parameter uncertainty. Adjusting monetary policy based on this kind of cross-checking can improve the outcome for the monetary authority. This, however, crucially depends on the relative welfare weight that is attached to the output gap and also the degree of monetary policy commitment. We find that Taylor rule cross-checking is on average able to improve losses when the monetary authority only moderately cares about output stabilization and when policy is set in a discretionary way.
Acknowledgements
We thank Pooyan Amir Ahmadi, Ester Faia, Mickel Neves, Mirko Wiederholt, the editor Arpad Abraham, two anonymous referees, and participants of the 2012 Annual Congress of the German Economic Association. All errors are ours. The opinions expressed in this paper are those of the authors and do not necessarily reflect the views of the Deutsche Bundesbank.
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©2014 by De Gruyter
Articles in the same Issue
- Frontmatter
- Advances
- Optimal portfolios with wealth-varying risk aversion in the neoclassical growth model
- Inventories and the stockout constraint in general equilibrium
- Optimal second best taxation of addictive goods in dynamic general equilibrium: a revenue raising perspective
- Inflation effects on capital accumulation in a model with residential and non-residential assets
- Optimal capital-income taxation in a model with credit frictions
- Contributions
- Interest rate fluctuations and equilibrium in the housing market
- News shocks and learning-by-doing
- Capacity utilization and the effects of energy price increases in Japan
- Small-scale New Keynesian model features that can reproduce lead, lag and persistence patterns
- Optimal policy and Taylor rule cross-checking under parameter uncertainty
- The impact of American and British involvement in Afghanistan and Iraq on health spending, military spending and economic growth
- Why does natural resource abundance not always lead to better outcomes? Limited financial development versus political impatience
- The skill bias of technological change and the evolution of the skill premium in the US since 1970
- Aggregate impacts of recent US natural gas trends
- Organizational learning and optimal fiscal and monetary policy
- Industrial specialization, financial integration and international consumption risk sharing
- Leverage, investment, and optimal monetary policy
- Public debt in an OLG model with imperfect competition: long-run effects of austerity programs and changes in the growth rate
- Temporal aggregation and estimated monetary policy rules
- International transmission of productivity shocks with nonzero net foreign debt
- Did the euro change the effect of fundamentals on growth and uncertainty?
- Topics
- Real factor prices and factor-augmenting technical change
- Monetary policy and TIPS yields before the crisis
Articles in the same Issue
- Frontmatter
- Advances
- Optimal portfolios with wealth-varying risk aversion in the neoclassical growth model
- Inventories and the stockout constraint in general equilibrium
- Optimal second best taxation of addictive goods in dynamic general equilibrium: a revenue raising perspective
- Inflation effects on capital accumulation in a model with residential and non-residential assets
- Optimal capital-income taxation in a model with credit frictions
- Contributions
- Interest rate fluctuations and equilibrium in the housing market
- News shocks and learning-by-doing
- Capacity utilization and the effects of energy price increases in Japan
- Small-scale New Keynesian model features that can reproduce lead, lag and persistence patterns
- Optimal policy and Taylor rule cross-checking under parameter uncertainty
- The impact of American and British involvement in Afghanistan and Iraq on health spending, military spending and economic growth
- Why does natural resource abundance not always lead to better outcomes? Limited financial development versus political impatience
- The skill bias of technological change and the evolution of the skill premium in the US since 1970
- Aggregate impacts of recent US natural gas trends
- Organizational learning and optimal fiscal and monetary policy
- Industrial specialization, financial integration and international consumption risk sharing
- Leverage, investment, and optimal monetary policy
- Public debt in an OLG model with imperfect competition: long-run effects of austerity programs and changes in the growth rate
- Temporal aggregation and estimated monetary policy rules
- International transmission of productivity shocks with nonzero net foreign debt
- Did the euro change the effect of fundamentals on growth and uncertainty?
- Topics
- Real factor prices and factor-augmenting technical change
- Monetary policy and TIPS yields before the crisis