Pirozhkova, Ekaterina (2017) Financial frictions and robust monetary policy in the models of New Keynesian framework. Working Paper. Birkbeck, University of London, London, UK.
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Abstract
In this paper I study how financial frictions affect robustness of monetary policy in DSGE models in the case of model uncertainty. The types of frictions I consider are financial accelerator and collateral constraints. Modeling monetary policy in terms of optimal interest rate rules, I find that welfare-maximizing policies for the models with financial frictions are robust to model uncertainty. Policy rule optimal for the basic New Keynesian model is not robust. Thereby I show that when there is uncertainty about what type of frictions is at work, a policymaker exposes economy to risks of significant welfare losses by using a reference model without frictions as economy representation. Using fault tolerance approach I find that modified policy rule optimal for the basic New Keynesian model is robust when it allows to respond to uctuations in output.
Metadata
| Item Type: | Monograph (Working Paper) |
|---|---|
| Additional Information: | BCAM 1701; ISSN 1745-8587 |
| Keyword(s) / Subject(s): | Optimal monetary policy rules, Financial frictions, DSGE models, Robust- ness. |
| School: | Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School |
| Research Centres and Institutes: | Applied Macroeconomics, Birkbeck Centre for |
| Depositing User: | Administrator |
| Date Deposited: | 21 Mar 2019 16:19 |
| Last Modified: | 02 Aug 2023 17:49 |
| URI: | https://eprints.bbk.ac.uk/id/eprint/26667 |
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