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Monetary Policy Under Uncertainty and Learning: An Overview

  • Klaus Schmidt-Hebbel;
  • Carl E. Walsh

Central banks must make policy decisions in the face of uncertainty based on imperfect and evolving knowledge about the economy. While few general results have emerged from the research on monetary policy in the face of uncertainty and learning, a key lesson is that neither uncertainty nor learning can be ignored. This paper selectively reviews the literature on uncertainty and learning, specifically on the insights that are important for the conduct of monetary policy. Then it surveys the new research presented at the latest annual conference of the Central Bank of Chile, which uncovered recent theoretical results and empirical evidence for developed countries and the Chilean economy.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 509.

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Date of creation: Dec 2008
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Handle: RePEc:chb:bcchwp:509
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  1. Orphanides, Athanasios, 2000. "The quest for prosperity without inflation," Working Paper Series 0015, European Central Bank.
  2. Craine, Roger, 1979. "Optimal monetary policy with uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 1(1), pages 59-83, February.
  3. Klaus Schmidt-Hebbel D. & Carl E. Walsh., 2008. "Monetary Policy Under Uncertainty and Learning: An Overview," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 11(3), pages 5-19, December.
  4. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper 0107, Federal Reserve Bank of Cleveland.
  5. Christopher J. Erceg and Andrew T. Levin, 2001. "Imperfect Credibility and Inflation Persistence," Computing in Economics and Finance 2001 19, Society for Computational Economics.
  6. Poole, William, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, MIT Press, vol. 84(2), pages 197-216, May.
  7. Lindé, Jesper, 2001. "Estimating New-Keynesian Phillips Curves: A Full Information Maximum Likelihood Approach," Working Paper Series 129, Sveriges Riksbank (Central Bank of Sweden), revised 30 Apr 2001.
  8. Glenn D. Rudebusch, 1999. "Is the Fed too timid? Monetary policy in an uncertain world," Working Papers in Applied Economic Theory 99-05, Federal Reserve Bank of San Francisco.
  9. Christina D. Romer & David H. Romer, 2002. "The evolution of economic understanding and postwar stabilization policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 11-78.
  10. Orphanides, Athanasios, 2003. "Monetary policy evaluation with noisy information," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 605-631, April.
  11. Adolfson, Malin & Laséen, Stefan & Lindé, Jesper & Villani, Mattias, 2008. "Evaluating an estimated new Keynesian small open economy model," Journal of Economic Dynamics and Control, Elsevier, vol. 32(8), pages 2690-2721, August.
  12. Thomas Laubach & John C. Williams, 2001. "Measuring the natural rate of interest," Finance and Economics Discussion Series 2001-56, Board of Governors of the Federal Reserve System (U.S.).
  13. Walsh, Carl E., 2004. "Implications of a Changing Economic Structure for the Strategy of Monetary Policy," Santa Cruz Center for International Economics, Working Paper Series qt84g1q1g6, Center for International Economics, UC Santa Cruz.
  14. anonymous, 2008. "Monetary policy report to the Congress," Web Site 16, Board of Governors of the Federal Reserve System (U.S.).
  15. Marc P. Giannoni & Michael Woodford, 2003. "Optimal Interest-Rate Rules: I. General Theory," NBER Working Papers 9419, National Bureau of Economic Research, Inc.
  16. Andrew T. Levin & John C. Williams, 2003. "Robust monetary policy with competing reference models," Working Paper Series 2003-10, Federal Reserve Bank of San Francisco.
  17. Kaushik Mitra & James Bullard, . "Learning About Monetary Policy Rules," Discussion Papers 00/41, Department of Economics, University of York.
  18. Timothy Cogley & Riccardo Colacito & Thomas J. Sargent, 2005. "Benefits from U.S. monetary policy experimentation in the days of Samuelson and Solow and Lucas," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  19. Glenn D. Rudebusch & John C. Williams, 2006. "Revealing the Secrets of the Temple: The Value of Publishing Central Bank Interest Rate Projections," NBER Working Papers 12638, National Bureau of Economic Research, Inc.
  20. Söderström, Ulf, 1999. "Monetary policy with uncertain parameters," SSE/EFI Working Paper Series in Economics and Finance 308, Stockholm School of Economics.
  21. Hansen, Lars Peter & Sargent, Thomas J., 2003. "Robust control of forward-looking models," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 581-604, April.
  22. Garnier, Julien & Wilhelmsen, Bjørn-Roger, 2005. "The natural real interest rate and the output gap in the euro area: a joint estimation," Working Paper Series 0546, European Central Bank.
  23. Kuttner, Kenneth N, 1994. "Estimating Potential Output as a Latent Variable," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 361-68, July.
  24. anonymous, 2008. "Monetary policy report to the Congress," Web Site 34, Board of Governors of the Federal Reserve System (U.S.).
  25. Athanasios Orphanides & John C. Williams, 2003. "Robust monetary policy rules with unknown natural rates," Finance and Economics Discussion Series 2003-11, Board of Governors of the Federal Reserve System (U.S.).
  26. Walsh, Carl E, 2004. "Robustly Optimal Instrument Rules and Robust Control: An Equivalence Result," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(6), pages 1105-13, December.
  27. Bennett T. McCallum, 2001. "Should Monetary Policy Respond Strongly to Output Gaps?," NBER Working Papers 8226, National Bureau of Economic Research, Inc.
  28. Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research 35, National Bank of Belgium.
  29. Gaspar, Vitor & Smets, Frank, 2002. "Monetary Policy, Price Stability and Output Gap Stabilization," International Finance, Wiley Blackwell, vol. 5(2), pages 193-211, Summer.
  30. Giannoni, Marc P., 2002. "Does Model Uncertainty Justify Caution? Robust Optimal Monetary Policy In A Forward-Looking Model," Macroeconomic Dynamics, Cambridge University Press, vol. 6(01), pages 111-144, February.
  31. Paul Jenkins & David Longworth, 2002. "Monetary Policy and Uncertainty," Bank of Canada Review, Bank of Canada, vol. 2002(Summer), pages 3-10.
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