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.
Levin, Andrew, Volker Wieland and John C. Williams.
2003."The Performance of Forecast-Based Monetary Policy Rules Under Model Uncertainty ."American Economic Review,
93(3): 622-645.DOI: 10.1257/000282803322157016