Monetary policy and uncertainty about the natural unemployment rate

Volker Wieland

No 1998-22, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper studies the optimal monetary policy in the presence of uncertainty about the natural rate and the short-run inflation-unemployment tradeoff. Two conflicting motives drive policy. In the static version of the model, uncertainty provides a motive for the policymaker to move cautiously. In the dynamic version, uncertainty motivates an element of experimentation. I find that the optimal policy that balances these motives typically still exhibits gradualism, i.e., is less aggressive than a policy that disregards parameter uncertainty. Exceptions occur when uncertainty is very high and inflation close to target.

Keywords: Monetary policy; Unemployment (search for similar items in EconPapers)
Date: 1998
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Citations: View citations in EconPapers (38)

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Related works:
Working Paper: Monetary Policy and Uncertainty about the Natural Unemployment Rate (2003)
Working Paper: Monetary Policy and Uncertainty about the Natural Unemployment Rate (2003)
Working Paper: Monetary Policy and Uncertainty about the Natural Unemployment Rate
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