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Designing monetary policy rules in an uncertain economic environment

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  • Michael Dotsey
  • Charles I. Plosser

Abstract

A well-designed monetary policy can help the economy respond efficiently to economic disturbances by limiting the deviation of economic activity from its potential while keeping inflation close to its desired rate. But successful implementation of such strategies must confront significant challenges arising from various forms of economic uncertainty. In this article, Michael Dotsey and Charles Plosser discuss the design of monetary policy rules in an environment in which policymakers face two distinct forms of uncertainty: the uncertainty surrounding the precise values of key policy variables that often appear as determinants in such rules, and learning uncertainty, which arises when people have only an incomplete knowledge of the economy itself.

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Bibliographic Info

Article provided by Federal Reserve Bank of Philadelphia in its journal Business Review.

Volume (Year): (2012)
Issue (Month): Q1 ()
Pages: 1-9

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Handle: RePEc:fip:fedpbr:y:2012:i:q1:p:1-9

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Related research

Keywords: Monetary policy ; Uncertainty;

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  1. Woodford, Michael, 1999. "Optimal monetary policy inertia," CFS Working Paper Series 1999/09, Center for Financial Studies (CFS).
  2. Keith Sill, 2011. "Inflation dynamics and the New Keynesian Phillips curve," Business Review, Federal Reserve Bank of Philadelphia, issue Q1, pages 17-25.
  3. Roc Armenter, 2011. "Output gaps: uses and limitation," Business Review, Federal Reserve Bank of Philadelphia, issue Q1, pages 1-8.
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