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

  • Hyosung Kwon (a1) and Jianjun Miao (a2) (a3) (a4)

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.

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Corresponding author

Address correspondence to: Jianjun Miao, Department of Economics, Boston University, 270 Bay State Road, Boston, MA 02215, USA; e-mail: miaoj@bu.edu

Footnotes

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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.

Footnotes

References

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Macroeconomic Dynamics
  • ISSN: 1365-1005
  • EISSN: 1469-8056
  • URL: /core/journals/macroeconomic-dynamics
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