This paper discusses the nature of the uncertainty faced by central banks and considers three approaches to dealing with uncertainty(1) formal optimization models and robust rules based on such models; (2) informal rules like the Taylor rule and inflation targeting; and (3) a case by case approach based on an informal Bayesian logic. The latter case requires considering the asymmetric nature of the risks that the central bank often faces.
*Published:
Martin Feldstein, 2003. "Monetary policy in an uncertain environment," Proceedings, Federal Reserve Bank of Kansas City, pages 373-382.
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