It would therefore be not advisable for central banks to heavily rely in their policy decisions – and in the respective communication – on models or policy rules that place an inordinate weight on such unobservable parameters, which are difficult to measure in real time, and subject to considerable uncertainty of the underlying data.
My final remark on model and methodological challenges concerns the fact that most macroeconomic models today are solved and estimated in linear form, essentially relying on the linear stochastic difference approach used in macroeconomics since the 1950s. Again, this feature has merits and limitations: linear modelling techniques are powerful and easy to handle and can be scaled to larger and more complete models.