Local robustness analysis: Theory and application

This paper develops a general framework for conducting local robustness analysis. By local robustness, we refer to the calculation of control solutions that are optimal against the least favorable model among models close to an initial baseline. We provide Nash and Stackelberg equilibrium characteri...

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Bibliographic Details
Published inJournal of economic dynamics & control Vol. 29; no. 11; pp. 2067 - 2092
Main Authors Brock, William A., Durlauf, Steven N.
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.11.2005
Elsevier
Elsevier Sequoia S.A
SeriesJournal of Economic Dynamics and Control
Subjects
Computational methods
Design limits
Econometric models
Economic control
Economic equilibrium
Economic models
Economic theory
Mathematical methods
Model robustness
Model testing
Model uncertainty
Modelling
Monetary models
Monetary policy
Monetary theory
Optimal policy
Policy analysis
Robustness
Studies
Uncertainty
C52
E6
Robustness
Model uncertainty
Design limits
Optimal policy
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Summary:This paper develops a general framework for conducting local robustness analysis. By local robustness, we refer to the calculation of control solutions that are optimal against the least favorable model among models close to an initial baseline. We provide Nash and Stackelberg equilibrium characterizations of the choice of control. We apply this abstract formulation to a class of discrete time control problems. This analysis is conducted using frequency domain methods and is shown to involve certain fundamental limits to the efficacy of controls in such environments. Finally, we discuss some implications of our results for monetary policy.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0165-1889
1879-1743
DOI:10.1016/j.jedc.2005.06.001