Parameter misspecification with optimal targeting rules and endogenous objectives

Recent research in monetary economics has followed the advice of McCallum (1988) and investigated the robustness properties of monetary policy rules by evaluating them in a variety of models. Evaluation across models is typically based on an exogenously specified loss function. However, the theory on which many recent monetary policy models are based implies that changes in the structure of the model may also have consequences for the policy objectives the central bank should pursue. Objectives are endogenous, not exogenous to the model. In this paper, I investigate the impact of endogenous objectives on the evaluation of optimal targeting rules for monetary policy.