EconPapers: Monetary policy with imperfect knowledge

Athanasios Orphanides and John Williams

No 2005-51, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We examine the performance and robustness of monetary policy rules when the central bank and the public have imperfect knowledge of the economy and continuously update their estimates of model parameters. We find that versions of the Taylor rule calibrated to perform well under rational expectations with perfect knowledge perform very poorly when agents are learning and the central bank faces uncertainty regarding natural rates. In contrast, difference rules, in which the change in the interest rate is determined by the inflation rate and the change in the unemployment rate, perform well when knowledge is both perfect and imperfect.

Keywords: Monetary policy; Interest rates (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-cba, nep-knm, nep-mac and nep-mon
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Citations: View citations in EconPapers (16)

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Related works:
Journal Article: Monetary Policy with Imperfect Knowledge (2006)
Working Paper: Monetary policy with imperfect knowledge (2005)
Working Paper: Monetary Policy with Imperfect Knowledge (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2005-51

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