The Implications of Uncertainty for Monetary Policy

Geoffrey Shuetrim and Christopher Thompson

The Economic Record, 2003, vol. 79, issue 246, 370-379

Abstract: This paper uses a simple model of the Australian economy to empirically examine the consequences of parameter uncertainty for optimal monetary policy. Optimal policy responses are derived for a monetary authority that targets inflation and output stability. Parameter uncertainty is characterised by the estimated distribution of the model coefficient estimates. Learning is ruled out, so the monetary authority can commit to its ex ante policy response. For certain shocks, taking account of parameter uncertainty can recommend more, rather than less, activist use of the policy instrument. While this finding is specific to the model specification, parameter estimates and the shocks analysed, it contrasts with the widely held belief that the generic implication of parameter uncertainty is more conservative policy.

Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

Downloads: (external link)
https://doi.org/10.1111/1475-4932.00110

Related works:
Working Paper: The Implications of Uncertainty for Monetary Policy (1999)
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:bla:ecorec:v:79:y:2003:i:246:p:370-379

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0013-0249

Access Statistics for this article

The Economic Record is currently edited by Paul Miller, Glenn Otto and Martin Richardson

More articles in The Economic Record from The Economic Society of Australia Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().