American Economic Review Vol. 100 No. 1 2010
Robustly Optimal Monetary Policy with Near-Rational Expectations
Abstract
The paper considers optimal monetary stabilization policy in a forward-looking model, when the central bank recognizes that private sector expectations need not be precisely model-consistent, and wishes to choose a policy that will be as good as possible in the case of any beliefs that are close enough to model-consistency. It is found that commitment continues to be important for optimal policy, that the optimal long-run inflation target is unaffected by the degree of potential distortion of beliefs, and that optimal policy is even more history-dependent than if rational expectations are assumed.
- DOI
- 10.1257/aer.100.1.274
- Volume
- 100
- Issue
- 1
- Pages
- 274-303
- Language
- en
- Sources
- openalex bibtex:phds-export.bib crossref