However, if the volatility of the funds rate did increase, one possibility would be to introduce a regime of floors and ceilings that would limit the fluctuation in the federal funds rate to an acceptable range.
Our discussion paper “Money Demand and Macroeconomic Uncertainty” by Claus Greiber and Wolfgang Lemke which will be presented tomorrow provides another example of a measurement problem. This paper uses a variable labelled “macroeconomic uncertainty” to capture factors different from the traditional determinants of money demand. The authors try to filter out uncertainty from observable developments in financial markets and data on economic sentiment.