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

2018 ◽  
Vol 23 (5) ◽  
pp. 1895-1920 ◽  
Author(s):  
Hyosung Kwon ◽  
Jianjun Miao
Keyword(s):  
Monetary Policy ◽  
Optimal Policy ◽  
New Keynesian ◽  
New Keynesian Model ◽  
Perfect Equilibrium ◽  
Optimal Monetary Policy ◽  
Linear Quadratic ◽  
Keynesian Model ◽  
Markov Perfect ◽  
Time Invariant

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.

scholarly journals Dynamic Debt Deleveraging and Optimal Monetary Policy

2020 ◽  
Vol 12 (2) ◽  
pp. 310-350 ◽  
Author(s):  
Pierpaolo Benigno ◽  
Gauti B. Eggertsson ◽  
Federica Romei
Keyword(s):  
Monetary Policy ◽  
Lower Bound ◽  
New Keynesian ◽  
New Keynesian Model ◽  
Optimal Monetary Policy ◽  
Natural Rate ◽  
Keynesian Model ◽  
Natural Rate Of Interest ◽  
Standard Framework

This paper proposes a postcrisis New Keynesian model that incorporates agent heterogeneity in borrowing and lending with a minimum set of assumptions. Unlike the standard framework, this model makes the natural rate of interest endogenous and dependent on macroeconomic policy. The main application is to study optimal monetary policy at the zero lower bound (ZLB). Such policy succeeds in raising the natural rate of interest by creating an environment that speeds up deleveraging and thus endogenously shortens the crisis and the duration of binding ZLB. Inflation should be front-loaded and should overshoot its long-term target during the ZLB episode. (JEL E12, E31, E32, E43, E52)

scholarly journals Labor Markets and Monetary Policy: A New Keynesian Model with Unemployment

2010 ◽  
Vol 2 (2) ◽  
pp. 1-30 ◽  
Author(s):  
Olivier Blanchard ◽  
Jordi Galí
Keyword(s):  
Monetary Policy ◽  
Labor Market ◽  
Labor Markets ◽  
New Keynesian ◽  
Price Setting ◽  
Efficient Allocation ◽  
New Keynesian Model ◽  
Optimal Monetary Policy ◽  
Productivity Shocks ◽  
Keynesian Model

We construct a utility-based model of fluctuations with nominal rigidities and unemployment. We first show that under a standard utility specification, productivity shocks have no effect on unemployment in the constrained efficient allocation. That property is also shown to hold, despite labor market frictions, in the decentralized equilibrium under flexible prices and wages. Inefficient unemployment fluctuations arise when we introduce real-wage rigidities. As a result, in the presence of staggered price setting by firms, the central bank faces a trade-off between inflation and unemployment stabilization, which depends on labor market characteristics. We draw the implications for optimal monetary policy. (JEL E12, E24, E52)

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