Monetary policy with uncertain parameters

Ulf Söderström

No 13, Working Paper Series from European Central Bank

Abstract: In a simple dynamic macroeconomic model, it is shown that uncertainty about structural parameters does not necessarily lead to more cautious monetary policy, refining the accepted wisdom concerning the effects of parameter uncertainty on optimal policy. In particular, when there is uncertainty about the persistence of inflation, it may be optimal for the central bank to respond more aggressively to shocks than under certainty equivalence, since the central bank this way reduces uncertainty about the future development of inflation. Uncertainty about other parameters, in contrast, acts to dampen the policy response. JEL Classification: E43, E52

Keywords: Brainard conservatism; interest rate smoothing; optimal monetary policy; parameter uncertainty (search for similar items in EconPapers)
Date: 2000-02
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Citations: View citations in EconPapers (15)

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Related works:
Journal Article: Monetary Policy with Uncertain Parameters (2002)
Working Paper: Monetary policy with uncertain parameters (1999)
Working Paper: Monetary policy with uncertain parameters (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:200013

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