The many shades of uncertainty and monetary policy

Elisa Guglielminetti (), Alessandro Lin () and Andrea Tiseno ()
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Elisa Guglielminetti: Bank of Italy
Alessandro Lin: Bank of Italy
Andrea Tiseno: Bank of Italy

No 978, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper reviews how different sources of uncertainty influence monetary policy design and transmission. Within a New Keynesian framework, we distinguish between uncertainty arising from non-linearities in the economy and that stemming from imperfect information held by either the central bank or the private sector. While uncertainty is neutral under linearity and full-information rational expectations, departures from these conditions render it consequential for monetary policy. Non-linearities and information frictions alter the optimal degree of policy gradualism and may warrant either more forceful or more cautious responses. The proposed taxonomy offers a structured approach for policy discussions concerning appropriate monetary responses and communication strategies in the face of different types of uncertainty.

Keywords: uncertainty; monetary policy; non-linearities; information frictions (search for similar items in EconPapers)
JEL-codes: D81 D84 E52 E58 E61 (search for similar items in EconPapers)
Date: 2025-11
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_978_25

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