Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/273881 
Authors: 
Year of Publication: 
2022
Series/Report no.: 
MAGKS Joint Discussion Paper Series in Economics No. 43-2022
Publisher: 
Philipps-University Marburg, School of Business and Economics, Marburg
Abstract: 
We use a New Keynesian model that features rational and non-rational households. Assuming that both the fraction of rational households and the expectations formation process are uncertain from the perspective of the central bank, we derive robust optimal discretionary monetary policy in a simple min-max framework where the central bank plays a zero-sum game versus a fictitious, malevolent evil agent. We show that the central bank is able to improve welfare if it accounts for uncertainty while the model is being distorted. Even if the central bank accounts for the worst possible outcomes while the model is being undistorted, the central bank can still reduce the welfare loss by implementing a more aggressive targeting rule that favorably affects the inflation-output stabilization trade-off.
Subjects: 
Heterogeneous Expectations
Robust Monetary Policy
Policy Implementation
Uncertainty
JEL: 
E52
D84
Document Type: 
Working Paper

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