Financial frictions and robust monetary policy in the models of New Keynesian framework
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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