Prudent Monetary Policy and Prediction of the Output Gap.

Journal article

Risk-adjusted LQG optimal control with perfect and imperfect observation of the economy is used to obtain prudent Taylor rules for monetary policies and cautious Kalman filters. A prudent central bank adjusts the nominal interest rate more aggressively to changes in the inflation gap, especially if the volatility of cost-push shocks is large. If the interest rate impacts the output gap after a lag, the interest also responds to the output gap, especially with strong persistence in aggregate d...

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Authors: van der Ploeg, F

• Publisher: Elsevier
• Journal: Journal of Macroeconomics
• Volume: 31
• Issue: 2
• Pages: 217 - 230
• Publication date: 2009-01-01
• DOI: 10.1016/j.jmacro.2009.02.002
• ISSN: 0164-0704
• Language: English