How Should Monetary Policy Deal With Uncertainty?

We discuss how various forms of uncertainty affect the conduct of optimal monetary policy. We provide a summary of key insights from the academic literature, some of which are quite surprising. We explain how to make sense of them.

We make reference to the following academic papers:

Indicator variables for optimal policy,  LEO Svensson, M Woodford - Journal of Monetary Economics, 2003 https://www.sciencedirect.com/science/article/pii/S0304393203000308

Indicator variables for optimal policy under asymmetric information, LEO Svensson, M Woodford,  Journal of Economic Dynamics and Control

Volume 28, Issue 4, January 2004, Pages 661-690

https://www.sciencedirect.com/science/article/pii/S0165188903000393

The learning cost of interest rate reversals, Martin Ellison, Journal of Monetary Economics, Volume 53, Issue 8, November 2006, Pages 1895-1907

https://www.sciencedirect.com/science/article/pii/S0304393206001498