Transcripts of the monetary policymaking body of the Federal Reserve from 2002–2008.

There is a literature on robust policy design in which there are a number of different ways to model this. The one that you seem to be pointing to is a rival model methodology where we put different models up and see what we get if we take the optimal rule from one model and put it into some other model. Most of the literature suggests that policy should protect against the worst possible case in the set of models that we’re willing to consider. The usual prescription that comes out is that policy is more active than it would be under the policy for your base case model. But it’s going to depend on what models are in your set. It’s certainly possible to have cases in which it’s optimal to stay in a narrower range. It’s difficult to come up with a definitive answer, but that’s where the bulk of the literature seems to be pointing at the moment.

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