Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82388
Authors: 
Söderström, Ulf
Year of Publication: 
1999
Series/Report no.: 
Sveriges Riksbank Working Paper Series 83
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 is optimal for the central bank to respond more aggressively to shocks than if the parameter were known with certainty, since the central bank wants to avoid bad outcomes in the future. Uncertainty about other parameters, in contrast, acts to dampen the policy response.
Subjects: 
Optimal monetary policy
parameter uncertainty
Brainard conservatism principle
interest rate smoothing
JEL: 
E43
E52
Document Type: 
Working Paper

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