Research Discussion Paper – RDP 2000-07 The Effect of Uncertainty on Monetary Policy: How Good are the Brakes?

Contents

• Introduction
• Facts and Theories of Smoothing
• Uncertainty and Smoothing
• Model and Methodology
• Results
• Conclusion
• Appendix A: A Small Macroeconomic Model of Australia
• References

This paper was originally prepared for the Central Bank of Chile's conference on ‘Monetary Policy, Rules, and Transmission Mechanisms’, September 20–21, 1999. We thank Alexandra Heath for helpful discussions, Geoff Shuetrim and Chris Thompson for developing the optimisation routine, Nargis Bharucha for assistance in refining the programs, Lyndon Moore for providing the GDP revisions data, and David Gruen, Geoff Shuetrim and colleagues at the Reserve Bank for comments. The views expressed in this paper are those of the authors and are not necessarily those of the Reserve Bank of Australia.