SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

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 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.

Keywords: Optimal monetary policy; parameter uncertainty; Brainard conservatism principle; interest rate smoothing.

JEL-codes: E43; E52

21 pages, March 8, 1999

Full text files

hastef0308.pdf.zip  Full text

hastef0308.pdf  Full text

hastef0308.ps.zip PostScript file Full text

hastef0308.ps PostScript file Full text

Download statistics

Published as

Ulf Söderström, (2002), 'Monetary policy with uncertain parameters', Scandinavian Journal of Economics, vol 104, no 1, pages 125-145

• Stockholm School of Economics
• Home page for this series

Questions (including download problems) about the papers in this series should be directed to Helena Lundin ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:hhs:hastef:0308This page generated on 2024-09-13 22:15:05.