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Time horizon. We now consider the effect of the time horizon. Figs. 10 show lower- and upper-target robustnesses for θ = 3 and θ = 5 quarters in the future. Fig. 9 shows that the uppertarget robustness for inflation is far greater for the 3-quarter horizon (solid) than for the 5-quarter horizon (dashed). Not surprising; one would expect that the far future is more difficult to control. The 5-quarter robustness (dashed) is shifted farther to the right (hence lower robustness at any value of the target bound) and also has lower slope (hence higher cost of robustness) than the 3-quarter robustness.

Furthermore, we will observe a conflict between robustness of upper-target and lower-target values. A change in credibility which enhances one of these robustnesses will diminish the other robustness, though not necessarily by a large amount. We will find that robustness to uncertainty varies strongly over time, and that the temporal dynamics of the robustness is strongly influenced by the bank’s credibility. More credibility will tend to reduce the variability of the robustness. 3. If the policy maker prioritizes the policies according to their 44 Info-Gap Economics robustness, then preferences among the policies will change as the policy maker’s requirements on the outcomes change.

12), namely: xl ≤ xθ, ≤ xu . 11). 1: Estimated inflation (o), output gap (Δ) and interest rate (+). 5). θ = 5. 2: Estimated inflation (o), output gap (Δ) and interest rate (+). 2). θ = 5. Policy Exploration In this section we explore Taylor rules for controlling the inflation and the output gap. The purpose is to illustrate the insight which is obtained from the robustness functions. This is the basis of a systematic and exhaustive examination, which we do not pursue here. 5) one sees that, in order to predict the inflation and output gap at time step t + 1, the Rudebusch-Svensson model requires 7 measurements of past inflation, πt , .