Macroeconomic Policy in a Dynamic, Uncertain Economy.

• Position: Conference

An NBER-Universities Research Conference on "Macroeconomic Policy in a Dynamic, Uncertain Economy" took place in Cambridge on November 30 and December 1. Organizers Susanto Basu, NBER and University of Michigan, and Simon Gilchrist, NBER and Boston University, chose these papers for discussion:

Alexei Onatski, Columbia University, "Robust Monetary Policy under Model, Data, and Shock Uncertainty in a Small Forward-Looking Model of the U.S. Economy"

Discussant: Timothy Cogley, Arizona State University

Alex Cukierman, Tel Aviv University, and Francesco Lippi, Stanford University, "Endogenous Monetary Policy with Unobserved Potential Output"

Discussant: Simon Gilchrist

Athanasios Orphanides and John C. Williams, Federal Reserve Board, "Imperfect Knowledge, Inflation Expectations, and Monetary Policy"

Discussant: John V. Leahy, NBER and Boston University

Pedro P. Alvarez-Lois, Bank of Spain, "Capacity Utilization and the Asymmetric Effects of Monetary Policy"

Discussant: John Fernald, Federal Reserve Bank of Chicago

Andreas Hornstein and Pierre-Daniel Sarte, Federal Reserve Bank of Richmond, "Sticky Prices and Inventories: Production Smoothing Reconsidered"

Discussant: Mark Bils, NBER and University of Rochester

Eric M. Leeper, Indiana University, and Tao Zha, Federal Reserve Bank of Atlanta, "Empirical Analysis of Policy Interventions"

Discussant: Kenneth D. West, NBER and University of Wisconsin

Matteo Iacoviello, London School of Economics, "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle"

Discussant: Christopher House, University of Michigan

William Dupor, University of Pennsylvania, "Nominal Price versus Asset Price Stabilization"

Discussant: Frederic S. Mishkin, NBER and Columbia University

Onatski analyzes simple policy rules under model uncertainty in an empirical New Keynesian model of the U. S. economy earlier studied in Rudebusch (2000). He addresses three sets of issues: the degree of policy activism under model, data, and shock uncertainty; the stabilization properties of nominal income rules; and the robustness of forecast-based rules. He finds that aggressive policy rules are relatively more robust than cautious rules with respect to uncertainty about point estimates of parameters of the reference model. However, cautious rules look relatively more robust under more broadly specified uncertainty. Nominal income rules are much less robust than rules responding to inflation and the output gap. The...