Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152447
Authors: 
Söderström, Ulf
Year of Publication: 
2000
Series/Report no.: 
ECB Working Paper 13
Abstract: 
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 may be optimal for the central bank to respond more aggressively to shocks than under certainty equivalence, since the central bank this way reduces uncertainty about the future development of inflation. Uncertainty about other parameters, in contrast, acts to dampen the policy response.
JEL: 
E43
E52
Document Type: 
Working Paper

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