Macro Technical Paper No. 5
By Alex Haberis, Richard Harrison, Kate Reinold and Matt Waldron
Pervasive and time-varying uncertainty characterises the monetary policy environment. While theory provides insights into setting monetary policy under uncertainty, it is widely recognised that theoretical approaches are too simplified to be directly applicable. This paper discusses three alternative perspectives on the policy problem that can be applied in practice and that acknowledge uncertainty in different ways: a forecast-based, a news‑based, and a rules‑based perspective. These perspectives are complementary so that insights from all of them may be informative for policymaking. They should also be applied flexibly and with varying emphases depending on judgements about the prevailing level and nature of uncertainty. These observations provide some context for the approach that the Bank of England is taking to adapting monetary policymaking as part of its response to the Bernanke Review.
Monetary policymaking under uncertainty 