Using the technical jargon of our economic profession, we face not only the “usual” type of uncertainty resulting from unanticipated shocks to demand and supply, but also model, parameter and data uncertainty. What are the implications of all this for the formulation and implementation of monetary policy?
There are several conclusions pertaining to the assessment of the risks to price stability, the overall monetary policy strategy, and the actual conduct of policy. Let me elaborate on these issues with particular reference to the ECB’s monetary policy.