How can monetary policy take account of uncertainty and risk?
Date
26/11/2015
Jan Alsterlind describes how monetary policy can more clearly take uncertainty and risks into account.
His starting point is that a central bank cannot be certain which description of the economy is correct. This uncertainty may surround which economic relationships and/or which forecast models are appropriate to use when monetary policy decisions must be made. One possibility is to use several forecast models and weigh their respective forecasts together. This will make it possible for monetary policy to be characterised by consideration of risks, which are then defined and quantified. This would also make it easier to monitor and evaluate the account that the central bank has taken of risks and uncertainty in decision making.
The article is included in this year's third issue of the Sveriges Riksbank Economic Review , which was published 20 November 2015.
Jan Alsterlind
The author works in the Monetary Policy Department of the Riksbank.
