The Effect of Uncertainty on Monetary Policy: How Good are the Brakes?

Adam Cagliarini and Guy Debelle ()

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: In practice, monetary policy changes tend to produce a smooth path for interest rates while the path of policy interest rates generated by models is often considerably more variable. This paper investigates whether the inclusion of uncertainty can help reconcile the theory to the practice. It shows that parameter uncertainty does not induce much smoothness when its effects are directly incorporated into a model. Uncertainty about the interest sensitivity of output can increase the smoothness of optimal policy in a model, but the path of policy interest rates generated is still considerably more variable than that observed in practice.

Date: 2000-06
New Economics Papers: this item is included in nep-cba, nep-mon and nep-pke
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Citations: View citations in EconPapers (3)

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Related works:
Chapter: The Effect of Uncertainty on Monetary Policy: How Good are the Brakes? (2002)
Working Paper: The Effect of Uncertainty on Monetary Policy: How Good are the Brakes? (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:74

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