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
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
Discussion Paper
Further thoughts on testing for casuality with econometric models
Working Paper
Expectations, learning and the costs of disinflation: experiments using the FRB/US model
The costs of disinflation are explored using the Board's new sticky-price rational expectations macroeconometric model of the U.S. economy, FRB/US. The model nests both model consistent and `restricted-information rational' expectations. Monetary policy is governed by interest-rate reaction functions of which two are considered: the well-known Taylor rule and another rule that is more aggressive and richer in its specification, estimated using data for the last 15 years. Agents are required to learn of shifts of the inflation target using linear updating rules. The simulated costs of ...
Discussion Paper
Some partial equilibrium of tax reform on corporate policy
Working Paper
Activist vs. non-activist monetary policy: optimal rules under extreme uncertainty
This paper analyzes the optimality of reactive feedback rules advocated by neo-Keynesians, and constant money growth rules proposed by monetarists. The basis for this controversy is not merely a disagreement concerning sources and impacts of uncertainty in the economy, but also an apparent fundamental difference in the attitude toward uncertainty about models. To address these differences, this paper compares the relative reactiveness of a monetary policy instrument to conditioning information for two starkly differing versions of model uncertainty about the model and the data driving it: ...