Changes in GDP’s measurement error volatility and response of the monetary policy rate: two approaches

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Banco de la Republica de Colombia, Borradores de Economia, No: 814

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Parra-Polanía, Julián Andrés; Vargas-Riaño, Carmiña Ofelia
Banco de la República
E52 - Monetary Policy; D81 - Criteria for Decision-Making under Risk and Uncertainty; E58 - Central Banks and Their Policies; Prudence; Robustness; Measurement error; Optimal monetary policy; Política monetaria; Producto interno bruto -- Mediciones; Variables económicas; E52 - Política monetaria; D81 - Criterios para la toma de decisiones con riesgo e incertidumbre; E58 - Bancos centrales y sus políticas; Prudence, robustness, measurement error, optimal monetary policy.
paper description
Using a stylized model in which output is measured with error, we derive the optimal policy response to the demand shock signal and to changes in the measurement error volatility from two different perspectives: the minimization of the expected loss (from