Search Results
Working Paper
Avoiding Nash inflation: Bayesian and robust responses to model uncertainty
In his 1999 monograph The Conquest of American Inflation Tom Sargent describes how a policymaker, who applies a constant-gain algorithm in estimating the Phillips curve, can fall into the grip of an induction problem: concluding on the basis of reduced-form evidence that the trade-off between inflation and output is more favorable than it actually is. This results in oscillations between periods of disinflation and reflation. The problem arises because the policymaker is naive about possible misspecification, her role in creating that misspecification, and its role in policy design. In ...
Working Paper
On a problem in identifying linear parametric models
Working Paper
Avoiding Nash Inflation : Bayesian and Robust Responses to Model Uncertainty
We examine learning, model misspecification, and robust policy responses to misspecification in a quasi-real-time environment. The laboratory for the analysis is the Sargent (1999) explanation for the origins of inflation in the 1970s and the subsequent disinflation. Three robust policy rules are derived that differ according to the extent that misspecification is taken as a parametric phenomenon. These responses to drifting estimated parameters and apparent misspecification are compared to the certainty-equivalent case studied by Sargent. We find gains from utilizing robust approaches to ...
Discussion Paper
On the optimal monopoly price over time
Working Paper
On a problem in identifying linear parametric models
Working Paper
Some problems with identification in parametric models
Discussion Paper
Further thoughts on testing for casuality with econometric models