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Inflation Targeting under Uncertainty

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  • Gabriel Srour

Abstract

This paper studies the implications of certain kinds of uncertainty for monetary policy. It first describes the optimum policy rule in a simple model of the transmission mechanism as in Ball and Svensson. It then examines how this rule ought to be modified when there is uncertainty about the parameters, about the time lags, or about the nature of shocks. The paper also discusses the case of a small open economy such as Canada’s, with particular attention being given to uncertainty about the weights in a monetary conditions index.

Suggested Citation

  • Gabriel Srour, 1999. "Inflation Targeting under Uncertainty," Technical Reports 85, Bank of Canada.
    • Handle: RePEc:bca:bocatr:85
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    References listed on IDEAS

    as
    1. Duguay, Pierre, 1994. "Empirical evidence on the strength of the monetary transmission mechanism in Canada: An aggregate approach," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 39-61, February.
    2. Laurence Ball, 1999. "Efficient Rules for Monetary Policy," International Finance, Wiley Blackwell, vol. 2(1), pages 63-83, April.
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    Citations

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    Cited by:

    1. Lavan Mahadeva & Gabriel Sterne, 2002. "The role of short-run inflation targets and forecasts in disinflation," Bank of England working papers 167, Bank of England.
    2. Karel Brůna, 2009. "Měnová politika a predikce variability úrokových sazeb na peněžním trhu [Monetary policy and prediction of variability]," Politická ekonomie, Prague University of Economics and Business, vol. 2009(3), pages 361-382.
    3. Yetman, James, 2003. "Probing potential output: Monetary policy, credibility, and optimal learning under uncertainty," Journal of Macroeconomics, Elsevier, vol. 25(3), pages 311-330, September.
    4. J. Kilponen & Marc-Alexandre Sénégas & J. Vilmunen, 2006. "Bayesian versus robust control approach towards parameter uncertainty in monetary policymaking: how close are the outcomes? Some illustrating evidence from the EMU economies," Post-Print hal-00150522, HAL.
    5. Roman Horváth, 2008. "Asymmetric Monetary Policy in the Czech Republic?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 58(09-10), pages 470-481, December.
    6. Vivek H. Dehejia & Nicholas Rowe, 1999. "Macroeconomic Stabilisation: Fixed Exchange Rates vs Inflation Targeting vs Price Level Targeting," Carleton Economic Papers 99-15, Carleton University, Department of Economics, revised 22 Mar 2000.
    7. Rokon Bhuiyan, 2012. "Monetary transmission mechanisms in a small open economy: a Bayesian structural VAR approach," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(3), pages 1037-1061, August.
    8. Marc-Alexandre Sénégas, 2002. "La politique monétaire face à l'incertitude : un survol méthodologique des contributions relatives à la zone euro," Revue d'Économie Financière, Programme National Persée, vol. 65(1), pages 177-200.
    9. Frederic S. Miskin & Klaus Schmidt-Hebbel, 2007. "Monetary Policy under Inflation Targeting: An Introduction," Central Banking, Analysis, and Economic Policies Book Series, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 1, pages 001-022, Central Bank of Chile.
    10. Robert Tetlow & Peter von zur Muehlen, 2004. "Avoiding Nash Inflation: Bayesian and Robus Responses to Model Uncertainty," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(4), pages 869-899, October.
    11. Katerina Smidkova, 2003. "Methods Available to Monetary Policy Makers to Deal with Uncertainty," Macroeconomics 0310002, University Library of Munich, Germany.
    12. Soderstrom, Ulf, 2002. " Monetary Policy with Uncertain Parameters," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(1), pages 125-145.
    13. Katerina Smidkova, 2003. "Targeting Inflation under Uncertainty: Policy Makers' Perspective," Research and Policy Notes 2003/02, Czech National Bank.
    14. David Longworth & Brian O´Reilly, 2002. "The Monetary Policy Transmission Mechanism and Policy Rules in Canada," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.),Monetary Policy: Rules and Transmission Mechanisms, edition 1, volume 4, chapter 13, pages 357-392, Central Bank of Chile.
    15. Karel Bruna & Quang Van Tran, 2018. "Inflation Targeting and Variability of Money Market Interest Rates Under a Zero Lower Bound," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 68(6), pages 519-539, December.
    16. Gabriel Srour, 2003. "Some Notes on Monetary Policy Rules with Uncertainty," Staff Working Papers 03-16, Bank of Canada.
    17. Moessner, Richhild, 2005. "Optimal discretionary policy and uncertainty about inflation persistence," Working Paper Series 540, European Central Bank.
    18. Jamie Armour & Ben Fung & Dinah Maclean, 2002. "Taylor Rules in the Quarterly Projection Model," Staff Working Papers 02-1, Bank of Canada.

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    More about this item

    Keywords

    Monetary policy framework ; Uncertainty and monetary policy;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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