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Welfare-maximizing Monetary Policy Under Parameter Uncertainty by Rochelle M. Edge; Thomas Laubach; John C. Williams is a Economics, Econometrics and Finance article available to read on EtoBox.

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## Abstract This paper examines welfare‐maximizing monetary policy in an estimated micro‐founded general equilibrium model of the US economy where the policymaker faces uncertainty about model parameters. Uncertainty about parameters describing preferences and technology implies uncertainty about the model's dynamics, utility‐based welfare criterion and the ‘natural’ rates of output and interest that would prevail absent nominal rigidities. We estimate the degree of uncertainty regarding natural rates due to parameter uncertainty. We find that optimal Taylor rules under parameter uncertainty respond less to the output gap and more to price inflation than would be optimal absent parameter uncertainty. We also show that policy rules that focus solely on stabilizing wages and prices yield welfare outcomes very close to the first‐best. Copyright © 2009 John Wiley & Sons, Ltd.

Who reads Welfare-maximizing Monetary Policy Under Parameter Uncertainty?

Author

Rochelle M. Edge; Thomas Laubach; John C. Williams

Publisher

John Wiley and Sons; Wiley (John Wiley & Sons); John Wiley & Sons Inc.; Wiley (ISSN 0883-7252)

Published

2010

Language

EN

Field

Economics, Econometrics and Finance (Social Sciences)