Doubts about the model and optimal policy

• 成果类型: Article
• 署名作者: Karantounias, Anastasios G.
• 署名单位: University of Surrey
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2023.105643
• 发表日期: 2023
• 关键词: model uncertainty; ambiguity aversion; Robustness; Multiplier preferences; Optimal policy design; Managing expectations

摘要

This paper analyzes optimal policy in setups where both the policymaker and the private sector have doubts about the probability model of uncertainty and form endogenous worst-case beliefs. There are two forces that shape optimal policy results: a) the manipulation of the endogenous beliefs of the private sector so that the forward-looking constraints that the policymaker is facing are relaxed, b) the discrepancy (if any) in pessimistic beliefs between a paternalistic policymaker and the private sector, which captures ulti-mately differences in welfare evaluation. I illustrate the methodology in an optimal fiscal policy problem and show that manipulation of beliefs materializes as an effort to make government debt cheaper through the endogenous beliefs of the household. This force may lead to either mitigation or amplification of the household's pessimism, depending on the problem's parameters. The policymaker's relative pessimism de-termines whether paternalism reinforces or opposes the price manipulation incentives.(c) 2023 The Author. Published by Elsevier Inc. This is an open access article under the CC BY license (http://creativecommons .org /licenses /by /4 .0/).