Monetary Policy, Uncertainty, and Communications

Vaishali Garga, Edward Herbst, Alisdair McKay, Giovanni Nicolo and Matthias Paustian
Additional contact information
Giovanni Nicolo: https://www.federalreserve.gov/econres/giovanni-nicolo.htm
Matthias Paustian: https://www.federalreserve.gov/econres/matthias-o-paustian.htm

No 2025-074, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We review the design and communication of monetary policy strategies that take into account risks and uncertainty. A key element in a robust monetary strategy is the concept of risk management, which is the weighing of key risks when setting policy. When risks to the outlook are balanced, the baseline outlook may be sufficient to guide policy decisions. However, risk-management considerations become important when risks are asymmetric. We discuss how robust simple interest rate rules and optimal control policy can incorporate risk-management considerations into the design of a monetary policy strategy. Alternative scenarios can illustrate salient risks and how monetary policy might respond if those risks were to materialize. However, using alternative scenarios in policy deliberations and communications requires important implementation choices.

Keywords: Uncertainty; Risk management; Robust monetary policy strategies; Scenario analysis; Monetary policy communication (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 E58 (search for similar items in EconPapers)
Pages: 23 p.
Date: 2025-08-22
New Economics Papers: this item is included in nep-mac, nep-mon and nep-rmg
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.federalreserve.gov/econres/feds/files/2025074pap.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2025-74

DOI: 10.17016/FEDS.2025.074

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().