Affiliation:
1. Economic Research, Federal Reserve Bank of Chicago, Chicago, Illinois 60604;
Abstract
This review considers the design of macroeconomic policies in the face of uncertainty. In recent years, several economists have advocated that, when policy makers are uncertain about the environment they face and find it difficult to assign precise probabilities to the alternative scenarios that may characterize this environment, they should design policies to be robust in the sense that they minimize the worst-case loss these policies could ever impose. I review and evaluate the objections cited by critics of this approach. I argue further that, contrary to what some have inferred, concern about worst-case scenarios does not always lead to policies that respond more aggressively to incoming news than the optimal policy would respond absent any uncertainty.
Subject
Economics and Econometrics
Cited by
26 articles.
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1. Doubts about the model and optimal policy;Journal of Economic Theory;2023-06
2. Ambiguity;Handbook of Economic Expectations;2023
3. Robustly Optimal Monetary Policy in a Behavioral Environment;The B.E. Journal of Macroeconomics;2022-09-13
4. Progressive Taxation and Robust Monetary Policy;The B.E. Journal of Macroeconomics;2022-08-24
5. Resilient Control for Macroeconomic Models;Computational Economics;2022-04-02