ISBN:  Unavailable

Category: Unavailable

Page count: 24

This paper deals with the linear quadratic stochastic control approach to assessing the effects of parameter estimation uncertainty on the central banker behavior. The treatment of parameter estimation uncertainty is covered by the introduction of the full variance-covariance matrix of the parameters estimates in the optimal control theory. The proposed approach is simple to implement and is applicable to a large class of model. The principle of conservatism of Brainard is found empirically relevant for a Euro area policymaker.