TY  - UNPD
A1  - Wieland, Volker
T1  - Monetary policy and uncertainty about the natural unemployment rate
T2  - Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2003,05
N2  - Inflation-targeting central banks have only imperfect knowledge about the effect of policy decisions on inflation. An important source of uncertainty is the relationship between inflation and unemployment. This paper studies the optimal monetary policy in the presence of uncertainty about the natural unemployment rate, the short-run inflation-unemployment tradeoff and the degree of inflation persistence in a simple macroeconomic model, which incorporates rational learning by the central bank as well as private sector agents. Two conflicting motives drive the optimal policy. In the static version of the model, uncertainty provides a motive for the policymaker to move more cautiously than she would if she knew the true parameters. In the dynamic version, uncertainty also motivates an element of experimentation in policy. I find that the optimal policy that balances the cautionary and activist motives typically exhibits gradualism, that is, it still remains less aggressive than a policy that disregards parameter uncertainty. Exceptions occur when uncertainty is very high and in inflation close to target.
T3  - CFS working paper series - 2003, 05 
KW  - monetary policy
KW  - inflation targeting
KW  - parameter uncertainty
KW  - optimal learning
KW  - natural unemployment rate
KW  - Notenbank
KW  - Geldpolitik
KW  - Inflation
KW  - Arbeitslosigkeit
Y1  - 2003
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/4478
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30-10119
IS  - This version: December 2002
ER  -