Until not long ago, the consensus in the literature on monetary policy implicitly assumed that central banks knew the true economic model, that we were able to correctly observe all relevant variables, and that they accurately knew the various random forces affecting the economic system. Under this perspective, the only remaining “uncertainty” was actually the effective value of these stochastic disturbances.
The different sources of uncertainty are reflected in the concrete challenges central banks face in monetary policy design and implementation. Moreover, they influence the way in which information is processed and the procedures to determine appropriate intervention and operation rules.