Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 499: Solution of Macromodels with Hansen-Sargent Robust Policies: Some Extensions

Paolo Giordani () and Paul Söderlind ()
Additional contact information
Paolo Giordani: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Paul Söderlind: Dept. of Finance, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden

Abstract: We summarize some methods useful in formulating and solving Hansen-Sargent robust control problems, and suggest extensions to discretion and simple rules. Matlab, Octave, and Gauss software is provided. We illustrate these extensions with applications to the term structure of interest rates, the time inconsistency of optimal monetary policy, the effects of expectations on the variances of inflation and output, and on whether central banks should make their forecasts public.

Keywords: robustness; model uncertainty; discretion; simple rules

JEL-codes: E43; E52; L61

21 pages, First version: May 2, 2002. Revised: May 15, 2003. Earlier revisions: May 15, 2003.

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