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American Economic Review: Vol. 93 No. 3 (June 2003)
AER Volume. 93, Issue 3 | 
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The Performance of Forecast-Based Monetary Policy Rules Under Model Uncertainty
Article Citation
Levin, Andrew,
Volker Wieland, and
John C. Williams. 2003. "The Performance of Forecast-Based Monetary Policy Rules Under Model Uncertainty ."
The American Economic Review,
93(3): 622-645.
DOI: 10.1257/000282803322157016
DOI: 10.1257/000282803322157016
Abstract
We investigate the performance of forecast-based monetary policy rules using five macroeconomic models that reflect a wide range of views on aggregate dynamics. We identify the key characteristics of rules that are robust to model uncertainty; such rules respond to the one-year-ahead inflation forecast and to the current output gap and incorporate a substantial degree of policy inertia. In contrast, rules with longer forecast horizons are less robust and are prone to generating indeterminacy. Finally, we identify a robust benchmark rule that performs very well in all five models over a wide range of policy preferences.
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Authors
Levin, Andrew
Wieland, Volker
Williams, John C.
Wieland, Volker
Williams, John C.
