Financial stability under model uncertainty

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Financial_stability_under_model_uncertainty.pdf (277.83 KB)

Date

2018

Authors

Kantur, Z.
Özcan, G.

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Source Title

Economics Letters

Print ISSN

0165-1765

Electronic ISSN

1873-7374

Publisher

Elsevier B.V.

Volume

173

Issue

Pages

65 - 68

Language

English

Type

Article

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Abstract

This paper studies how asset price model misspecification affects the conduct of monetary policy under commitment in a New Keynesian model using robust control techniques. We find that monetary policy reacts aggressively to both asset price and inflation shocks to guard herself against worst-case outcome.

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Keywords

Asset price, Model uncertainty, Optimal monetary policy, Robust control

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http://hdl.handle.net/11693/49866

Published Version (Please cite this version)

https://doi.org/10.1016/j.econlet.2018.09.019

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Scholarly Publications - Economics