Robust Monetary Policy in Uncertainty for Iran’s Economy by using the Hansen and Sargent Approach

Document Type : Research Paper

Authors

1 Ph.D. Student, Department of Economics, University of Isfahan,

2 Department of Economics, University of Isfahan

3 Associate Professor, Department of Economics, University of Isfahan

Abstract

Typically, the objectives of monetary policymakers in different economies include reducing inflation and output gap. To achieve these goals, the monetary authorities should adopt appropriate monetary policies. Since the economic models are facing with uncertainty, the uncertainty should be considered in appropriate monetary policies. We investigate discretionary monetary policy with uncertainty about cost push shock and demand pull shock through the Hansen and Sargent’s robust control approach (2002). We use the dynamic stochastic general equilibrium model where the money growth rate has been introduced as a monetary policy instrument. The robust optimal monetary policy for Iran’s economy in response to cost push shock is more aggressive than the monetary policy with certainty, but in response to demand pull shock, no difference exists between robust optimal monetary policy and monetary policy with certainty. Following an increase in inflation weight and money growth rate weight in policymaker’s loss function, the monetary policy with uncertainty remains still aggressive in response to cost push.
JEL Classification: E52, E58, E61, E12

Keywords

Main Subjects

References

توکلیان، حسین (1391). بررسی منحنی فلیپس کینزی جدید در قالب یک مدل تعادل عمومی پویای تصادفی برای اقتصاد ایران. مجله‌ی تحقیقات اقتصادی، دوره‌ی چهل و هفتم، شماره‌ی سوم، صص1-22.
درگاهی، حسن و شربت اوغلی، رویا (1389). تعیین قاعده‌ی سیاست پولی در شرایط تورم پایدار اقتصاد ایران با استفاده از روش کنترل بهینه. مجله‌ی تحقیقات اقتصادی، شماره93، صص 27-1.
زراء نژاد، منصور و انواری، ابراهیم (1391). تعیین سیاست‌های پولی و مالی بهینه اقتصاد ایران در فضای نا اطمینانی با استفاده از مدل اقتصاد کلان پایه‌ی خرد. دو فصلنامه‌ی اقتصاد پولی و مالی (دانش و توسعه‌ی سابق) دوره‌ی جدید، سال نوزدهم، شمارة 3،  صص 1-27.
شاهمرادی، اصغر و صارم، مهدی (1392). سیاست پولی بهینه و هدف‌گذاری تورم در ایران. مجله‌ی تحقیقات اقتصادی، دوره‌ی 48، شماره‌ی 2، صص25-42.
Blinder, A. (1997). Distinguished Lecture on Economics in Government: What Central Bankers Could Learn from Academics - and Vice Versa?. Journal of Economic Perspectives, 11, 3-19.
Brainard, W. (1967). Uncertainty and effectiveness of policy. American Economic Review, 57(2), 411-425.
Giannoni, M. (2002). Does model uncertainty justify caution? Robust optimal monetary policy in a forward-looking model. Macroeconomic Dynamics 6, 111–144.
Giordani, P., & Soderlind, P. (2004). Solution of macro models with Hansen–Sargent robust policies: some extensions. Journal of Economic Dynamics & Control, NO 28, 2367 – 2397.
Hansen, L.P., & Sargent, T.J. (2001). Acknowledging misspecification in macroeconomic theory. Review of Economic Dynamics 4, 519–535.
Hansen, L.P., & Sargent, T.J. (2002). Robust control and model uncertainty in macroeconomics. Stanford University manuscript.
Levin, A. T., & Williams, J.C. (2003). Robust monetary policy with competing reference models. Journal of Monetary Economics 50, 945–975.
Medeiros, G. B. D., Portugal, M. S., & Aragón, E. K. D. B. (2016). Robust monetary policy, structural breaks, and nonlinearities in the reaction function of the Central Bank of Brazil. EconomiA, Volume 17, Issue 1, 96–113.
Onatski, A., & Stock, J. H. (2002). Robust monetary policy under model uncertainty in a small model of the US economy. Macroeconomic Dynamics 6, 85–110.
Onatski, A., & Williams, N. (2003). Modeling model uncertainty. Journal of the European Economic Association 1, 1087–1122.
Sack. (2000). Does the fed act gradually? A VAR analysis. Journal of Monetary Economics, 46, 229-256.
Shuetrim, G., & Thompson, C. (1999). The implications of uncertainty for monetary policy. Economic Research Department Reserve Bank of Australia
Sims, C.A. (2001a). Pitfalls of a minimax approach to model uncertainty. Princeton University Discussion Paper.
Theil. (1958). Economic Forecasts and Policy. North-Holland Amsterdam
Tillmann, P. (2009). Optimal monetary policy with uncertain cost channel. Journal of Money, Credit and Banking 41 (5), 885–906.
Tinbergen. J. (1952). On the theory of economic policy. North-Holland Amsterdam
Traficante, G. (2013). Monetary policy, parameter uncertainty and welfare. Journal of Macroeconomics 35, 73–80.
Yannacopoulos, A.N. (2013). Robust control and applications in economic theory.
Zarra Nezhad, M& Anvari, E. (2012). Designing optimum monetary and fiscal policies of Iran under uncertainty in micro-founded macroeconomic model.  Journal of Monetary & Financial Economics, 19(3), 1-27.
 

Files

History

  • Receive Date: 26 February 2017
  • Revise Date: 04 February 2018
  • Accept Date: 19 September 2017

Share

How to cite

Statistics