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Monetary Policy under Uncertainty in WAEMU: Parsimonious Model and Central Bank Preferences
Author(s) -
Nantob N'Yilimon
Publication year - 2015
Publication title -
african development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.654
H-Index - 32
eISSN - 1467-8268
pISSN - 1017-6772
DOI - 10.1111/1467-8268.12143
Subject(s) - monetary policy , economics , inflation (cosmology) , variance (accounting) , interest rate , covariance , output gap , quadratic equation , control (management) , econometrics , macroeconomics , mathematics , statistics , physics , geometry , accounting , management , theoretical physics
This paper looks at the implications of monetary policy uncertainty in the WAEMU area over the period 1975Q1–2010Q2. Under uncertainty on the transmission mechanisms, the monetary policy must be cautious according to the Brainard conservatism principle . Using the linear quadratic stochastic control approach by introduction the variance covariance matrix of the estimated parameters in the optimal control theory the results through the optimal monetary policy rule yield that the policy‐makers are always very cautious when they have an inflation and output gap stabilization objective. However, when they are concerned to smooth interest rate, their behavior becomes distinctly more aggressive.