Monetary Policy with Uncertain Parameters
By Ulf Söderström. Social Science Research Network, 2002
318 citations recorded by the source corpus.
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 is optimal for the central bank to respond more aggressively to shocks than if the parameter were known with certainty, since the central bank wants to avoid bad outcomes in the future. Uncertainty about other parameters, in contrast, acts to dampen the policy response.
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/0e172998f4fdf949e56720473ee449165f74bbe6
How researchers see this paper
The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.
In Economics and Econometrics
- Argia M. Sbordone
- G. Ascari
- Roberto Motto
- M. Rostagno
- Kai Leitemo
- Jonathan Yiangou
- Arthur Saint Guilhem
- Wolfgang Lemke
Citations in the corpus
- Simple monetary policy rules and exchange rate uncertainty (2005, background): “, Söderström (2002) or Sack (2000) for such analyses of closed economies.”
- The Macroeconomics of Trend Inflation (2014, background): “As argued by Summers (1991), stabilizing the economy may occasionally require real negative interest rates, and nominal rates cannot fall below zero; therefore a very low average inflation rate may limit the ability of central banks to conduct effective stabilization policy. Summers (1991) and Fisch”
- A Tale of Two Decades: The Ecb's Monetary Policy at 20 (2019, background): “Depending on the nature of the uncertainty, optimal policy should be less or even more aggressive than prescribed by certainty-equivalent policy (Söderström, 2002).”
- DOES MODEL UNCERTAINTY JUSTIFY CAUTION? ROBUST OPTIMAL MONETARY POLICY IN A FORWARD-LOOKING MODEL (2002, unknown): “Whenever ́ is su¢ciently small (so that ́ < 3⁄4=1 ·) or large (so that ́ > 1 3⁄4=·), it results from (45) that the coe¢cients of the robust optimal Taylor rule Ã1⁄4 = 1=Ã̂ ¤ 1⁄4 and à ¤ x = Ã̂ ¤ x=Ã̂ ¤ 1⁄4 satisfy”