Research Discussion Paper – RDP 1999-10 The Implications of Uncertainty for Monetary Policy

Contents

• Introduction
• Sources of Forecast Uncertainty
• An Economic Model
• Optimal Policy Ignoring Parameter Uncertainty
• Characterising Parameter Uncertainty
• Optimal Policy Acknowledging Parameter Uncertainty
• Conclusion
• Appendix A: Generalising the Optimal Policy Problem
• References

An earlier version of this paper was presented at the Reserve Bank of New Zealand workshop on Monetary Policy under Uncertainty, 29–30 June 1998. We thank participants at that conference for their comments, especially Arthur Grimes, the paper's discussant. The paper has also benefited from discussions following a seminar at the Reserve Bank of Australia. In particular, we are grateful to Charles Bean, Adam Cagliarini, Gordon de Brouwer, David Gruen, Alexandra Heath, Philip Lowe and Gordon Menzies for their helpful comments. However, the views expressed are those of the authors and should not be attributed to the Reserve Bank of Australia.