Essays in Memory of Albert Ando
Edited by Lawrence R. Klein
* Filippo Altissimo, Stefano Siviero and Daniele Terlizzese 1. INTRODUCTION The notion of ‘robust monetary policy’ – a monetary policy whose stabilization properties remain relatively good irrespective of the true model of the economy – has recently attracted considerable attention. The main reason for the interest in the subject is well exempliﬁed in a recent paper by Levin et al. (2003). Considering ﬁve diﬀerent and widely used models of the US economy, Levin et al. show that the monetary policy rule that would be optimal (within a fairly general class of rules) for each single model could be a real disaster if one of the other models were to be the true representation of the economy. Levin and Williams (2003) conduct a similar experiment using three diﬀerent models of the US economy. The results are not typical of the USA. Coenen (2003) and Adalid et al. (2004) ﬁnd a similar lack of robustness considering two (respectively, four) alternative models of the euro area economy. The various models considered diﬀer along several dimensions. Yet, when testing the robustness of monetary policy rules an important role seems to be played by diﬀerences in the degree of inertia (of both inﬂation and output). This makes these ﬁndings particularly worrying, at least from a monetary policy perspective, since the degree of nominal inertia of the economy – or, to put it diﬀerently, the nature of the Phillips curve – is not yet well understood. As Mankiw (2001) recently wrote, ‘the dynamic relationship...
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