PROBING POTENTIAL OUTPUT: MONETARY POLICY, CREDIBILITY AND OPTIMAL LEARNING UNDER UNCERTAINTY

James Yetman

No 181, Computing in Economics and Finance 2000 from Society for Computational Economics

Abstract: The effective conduct of monetary policy is hampered by uncertainty surrounding the level of potential output. Here, the case for following a more aggressive policy to learn about the economy is considered in a model where potential output is changing over time. Following such a policy may be referred to as probing or experimenting.In this model, with parameters calibrated to recent Canadian data, the optimal amount of probing is small and increases only a little with credibility. Only for unrealistically large amounts of uncertainty does the optimal policy with probing diverge significantly from a policy that ignores learning, and even then, for most forms of uncertainty, the optimal amount of probing diminishes as credibility rises.

Date: 2000-07-05
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Probing potential output: Monetary policy, credibility, and optimal learning under uncertainty (2003)
Working Paper: Probing Potential Output: Monetary Policy, Credibility, and Optimal Learning under Uncertainty (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf0:181

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