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Monetary policy with uncertain parameters Author info | Abstract | Publisher info | Download info | Related research | Statistics Söderström, Ulf () (Research Department, Sveriges Riksbank)
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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.
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Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number
308.
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Length: 21 pages
Date of creation: 08 Mar 1999Date of revision:
Publication status: Published in Scandinavian Journal of Economics, 2002, pages 125-145.Handle: RePEc:hhs:hastef:0308Contact details of provider: Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden Phone: +46-(0)8-736 90 00 Fax: +46-(0)8-31 01 57 Email: Web page: http://www.hhs.se/ More information through EDIRC
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Keywords: Optimal monetary policy ; parameter uncertainty ; Brainard conservatism principle ; interest rate smoothing. ; Other versions of this item:
Find related papers by JEL classification: E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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