Faculty of Economics and Business Administration Publications Database

A Continuous Minimax Problem and its Application to Inflation Targeting

Rustem, Berc
Zakovic, Stanislav

In this paper we apply an algorithm for continuous minimax problems to a simple macroeconomic model with an inflation-targeting central bank. The algorithm uses a quasi—Newton direction conditional on appropriate maximizers, where the direction involves a quadratic subproblem to compute the minimum norm subgradient. The model and parameter estimates are taken from Orphanides and Wieland who have used it to analyze inflation zone versus point targeting. In this paper, however, the approach to monetary policy design is different as we minimize the worst—case with respect to inflation and economic activity. We compare the resulting policy recommendations under worst-case scenarios with those of the H ∞ approach, which has recently been applied to monetary policy by several authors.

Year: 2002
Link External Source: Online Version
Book Title: Decision and Control in Management Science
ISBN: 978-1-4419-4995-0
Editor: Georges Zaccour
Volume: 4
Publisher: Springer Science and Business Media
Pages: 201 - 219