Template-Type: ReDIF-Paper 1.0
Author-Name:  Eurilton Araújo
Author-Name-First: Eurilton
Author-Name-Last: Araújo
Title: Robust Monetary Policy with the Consumption-Wealth Channel
Abstract:  This paper studies how changes in the preference for robustness(central bank's concerns about model uncertainty) and in the size of wealth effects
affect the design of optimal monetary policy rules in the Blanchard-Yaari framework with sticky prices. First, I present analytical solutions by assuming that all exogenous disturbances are white noise. It is shown that an increased preference for robustness and stronger wealth effects imply
more aggressive policy responses to cost shocks. In addition, the monetary policy design problem is isomorphic to the same problem in the standard
New Keynesian framework. Then, I use numerical methods to study the case of persistent shocks. It is shown that an increased preference for
robustness continues to imply more aggressive responses to cost shocks. By contrast, stronger wealth effects lead to less aggressive responses.
Length:  28 pages
Creation-Date:  2008
Order-URL: https://repositorio.insper.edu.br/handle/11224/5769
File-URL: https://repositorio.insper.edu.br/handle/11224/5769
File-Format: text/html
File-Function: Full text
Number: 031
Handle: RePEc:aap:wpaper:031