Robust Monetary Policy under Model Uncertainty and Inflation Persistence.

This paper examines the relationship between the preference for ro- bustness of central bank (when it fears that its model is misspecified), the inflation persistence and the output cost of disinflation. Using a simple monetary game model in which higher preference for robustness of central bank is positively associated with the inflation persistence and thus nega- tively with the speed of disinflation, this paper shows that the output cost of disinflation is higher when the less the central bank believes that its reference model is robust.Model uncertainty, Robust control, Minmax policies, Inflation persistence, Sacrifice ratio.