Does uncertainty make a time-varying natural rate of interest irrelevant for the conduct of monetary policy?

J-S. M sonnier and Jean-Paul Renne
Authors registered in the RePEc Author Service: Jean-Stéphane Mésonnier

Working papers from Banque de France

Abstract: We compute optimized monetary policy rules for the ECB when the euro area economy is described by a small empirical macroeconomic model with a time-varying natural interest rate which is positively correlated with fluctuations in trend output growth. We investigate the consequences of both measurement uncertainty with respect to unobservable variables and uncertainty about key model parameters. An optimized Taylor rule with time-varying neutral rate appears to perform well compared to the unconstrained optimal policy, and better than other simple rules found in the literature, even when it is penalized by taking into account both types of uncertainty.

Keywords: Monetary policy rules; Natural rate of interest; Uncertainty. (search for similar items in EconPapers)
JEL-codes: E37 E52 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2007
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:175

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