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WOODFORD'S APPROACH TO ROBUST POLICY ANALYSIS IN A LINEAR-QUADRATIC FRAMEWORK

Published online by Cambridge University Press:  30 May 2018

Hyosung Kwon  and
Jianjun Miao
Hyosung Kwon
Affiliation:
The Bank of Korea
Jianjun Miao*
Affiliation:
Boston University Zhejiang University Southwestern University of Finance and Economics
*
Address correspondence to: Jianjun Miao, Department of Economics, Boston University, 270 Bay State Road, Boston, MA 02215, USA; e-mail: miaoj@bu.edu
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Abstract

This paper extends Woodford's approach to the robustly optimal monetary policy to a general linear quadratic framework. We provide algorithms to solve for a time-invariant linear robustly optimal policy in a timeless perspective and for a time-invariant linear Markov perfect equilibrium under discretion. We apply our methods to a New Keynesian model of monetary policy with persistent cost-push shocks and inflation persistence. We find that the robustly optimal commitment inflation is less responsive to a cost-push shock when the shock is more persistent and that the robustly optimal discretionary policy is more responsive to lagged inflation when inflation is more persistent.

Keywords

CommitmentDiscretionRobustnessPolicy Analysis
Type
Articles
Information
Macroeconomic Dynamics , Volume 23 , Issue 5 , July 2019 , pp. 1895 - 1920
Copyright
Copyright © Cambridge University Press 2018 

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Footnotes

We would like to thank Mike Woodford and Simon Gilchrist for helpful comments. We have benefitted from comments by the seminar participants at Boston University. First version: February 2012.

References

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