Rules of Percentage Rate in Conditions of Uncertainty
The paper is a review of research on the subject of the effectiveness of monetary policy implemented in conditions of uncertainty, when the policy itself is identified with the rule of percentage rateŠmost often the simple rule both with the traditional interpretation of the nature of the uncertainty, i.e. Bayesian uncertainty (effective rules) and uncertainty in Knight's sense (effectively resistant rules). In successive steps of the analysis the changes are investigated which should be introduced to the effective rule in order to take into consideration the risk/uncertainty located in different points of the decision process: inaccuracy of evaluations of the strength of the relationship between instruments and goals, inaccuracy of evaluations of inertial effects, incomplete knowledge about the current state of the economy, etc. Also investigated are the consequences of uncertainty of a more fundamental character: for example the existing but not explicit error of model specification (cause-effect description of the economy) and even uncertainty of the paradigm. The results of theoretical and empirical works show that Brainard's principle of conservatism, for many years being an unwritten but obliging indicator how to conduct monetary policy, has not got the value of generality - it is an effective method of facing uncertainty only in a particular situation (uncertainty of evaluation of the direct multiplier or imprecise data and the Bayesian loss function). With uncertainty located in other places of the model and the search for resistant rules an energetic policy of percentage rates may be desirable. Comparison of the rules themselves and the effects of their implementation with different location of the uncertainty and different methods of estimating the costs of possible errors leads to the somewhat banal conclusion: an effective monetary policy can be conducted when the uncertainty has not got a total (astructural) character and when it is known where the errors can appear - when the decision-maker is aware of what he really does not know.
Volume (Year): 9 (2003)
Issue (Month): ()
|Contact details of provider:|| Postal: ul. Dluga 44/50, 00-241 Warszawa|
Phone: +48 +22 5549184
Fax: (+48 22) 831 28 46
Web page: http://www.wne.uw.edu.pl
More information through EDIRC
|Order Information:|| Web: http://ekonomia.wne.uw.edu.pl Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Orphanides, Athanasios & Wieland, Volker, 2000.
"Inflation zone targeting,"
European Economic Review,
Elsevier, vol. 44(7), pages 1351-1387, June.
- Frank Smets, 1998.
"Output gap uncertainty: does it matter for the Taylor rule?,"
BIS Working Papers
60, Bank for International Settlements.
- Frank Smets, 2002. "Output gap uncertainty: Does it matter for the Taylor rule?," Empirical Economics, Springer, vol. 27(1), pages 113-129.
- Athanasios Orphanides, 1998.
"Monetary policy evaluation with noisy information,"
Finance and Economics Discussion Series
1998-50, Board of Governors of the Federal Reserve System (U.S.).
- Arturo Estrella & Frederic Mishkin, 1998.
"Rethinking the role of NAIRU in monetary policy: implications of model formulation and uncertainty,"
9806, Federal Reserve Bank of New York.
- Arturo Estrella & Frederic S. Mishkin, 1999. "Rethinking the Role of NAIRU in Monetary Policy: Implications of Model Formulation and Uncertainty," NBER Chapters, in: Monetary Policy Rules, pages 405-436 National Bureau of Economic Research, Inc.
- Arturo Estrella & Frederic S. Mishkin, 2000. "Rethinking the Role of NAIRU in Monetary Policy: Implications of Model Formulation and Uncertainty," NBER Working Papers 6518, National Bureau of Economic Research, Inc.
- Andrew Levin & Volker Wieland & John C. Williams, 2003.
"The Performance of Forecast-Based Monetary Policy Rules Under Model Uncertainty,"
American Economic Review,
American Economic Association, vol. 93(3), pages 622-645, June.
- Williams, John C. & Levin, Andrew T. & Wieland, Volker, 2001. "The performance of forecast-based monetary policy rules under model uncertainty," Working Paper Series 0068, European Central Bank.
- Andrew T. Levin & Volker W. Wieland & John C. Williams, 2001. "The performance of forecast-based monetary policy rules under model uncertainty," Finance and Economics Discussion Series 2001-39, Board of Governors of the Federal Reserve System (U.S.).
- Andrew Levin & John C. Williams, 2000. "The Performance of Forecast-Based Monetary Policy Rules under Model Uncertainty," Econometric Society World Congress 2000 Contributed Papers 1781, Econometric Society.
- Levin, Andrew & Wieland, Volker & Williams, John C., 2003. "The performance of forecast-based monetary policy rules under model uncertainty," CFS Working Paper Series 2003/06, Center for Financial Studies (CFS).
- Andrew Levin & Volker Wieland & John Williams, 2000. "The Performance Of Forecast-Based Monetary Policy Rules Under Model Uncertainty," Computing in Economics and Finance 2000 203, Society for Computational Economics.
- J. Tetlow, Robert & von zur Muehlen, Peter, 2001.
"Robust monetary policy with misspecified models: Does model uncertainty always call for attenuated policy?,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 25(6-7), pages 911-949, June.
- Robert J. Tetlow & Peter von zur Muehlen, 2000. "Robust monetary policy with misspecified models: does model uncertainty always call for attenuated policy?," Finance and Economics Discussion Series 2000-28, Board of Governors of the Federal Reserve System (U.S.).
- Alexei Onatski & James H. Stock, 2000.
"Robust Monetary Policy Under Model Uncertainty in a Small Model of the U.S. Economy,"
NBER Working Papers
7490, National Bureau of Economic Research, Inc.
- Alexei Onatski & James H. Stock, 1999. "Robust monetary policy under model uncertainty in a small model of the U.S. economy," Proceedings, Federal Reserve Bank of San Francisco.
- Onatski, Alexei & Stock, James H., 2002. "Robust Monetary Policy Under Model Uncertainty In A Small Model Of The U.S. Economy," Macroeconomic Dynamics, Cambridge University Press, vol. 6(01), pages 85-110, February.
- Athanasios Orphanides & Richard D. Porter & David L. Reifschneider & Robert J. Tetlow & Frederico Finan, 1999.
"Errors in the measurement of the output gap and the design of monetary policy,"
Finance and Economics Discussion Series
1999-45, Board of Governors of the Federal Reserve System (U.S.).
- Orphanides, Athanasios & Porter, Richard D. & Reifschneider, David & Tetlow, Robert & Finan, Frederico, 2000. "Errors in the measurement of the output gap and the design of monetary policy," Journal of Economics and Business, Elsevier, vol. 52(1-2), pages 117-141.
- Favero, Carlo A., 2001. "Applied Macroeconometrics," OUP Catalogue, Oxford University Press, number 9780198296850, July.
- Christopher A. Sims, 2001. "Pitfalls of a Minimax Approach to Model Uncertainty," American Economic Review, American Economic Association, vol. 91(2), pages 51-54, May.
- Caravani, P., 1995. "On H[infin] criteria for macroeconomic policy evaluation," Journal of Economic Dynamics and Control, Elsevier, vol. 19(5-7), pages 961-984.
When requesting a correction, please mention this item's handle: RePEc:eko:ekoeko:9_82. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marta Höffner)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.