As early as 1967, Brainard showed that central banks should respond more cautiously to economic disturbances when there is uncertainty as to how strongly the interest rate affects the economy, in other words when there is multiplicative uncertainty.15 On the other hand, according to theory, additive uncertainty, where uncertainty factors are assumed to be independent of the interest rate, shall not be taken into account when setting interest rates. Certainty equivalence implies that we make an unbiased projection for the uncertain factor and take the projection into account in the same way as if we knew with certainty that it would occur. Theory implies that the central bank should be more aggressive when setting interest rates when faced with certain types of multiplicative uncertainty, for example, uncertainty regarding the extent to which the deviation from the inflation target for a period has an effect on market participants’ expectations concerning future inflation.16 This is in line with previous statements from Norges Bank where we state that: The interest rate may be changed rapidly and markedly if there is a risk that inflation might deviate considerably from the target over an extended period so that inflation expectations might be influenced, or when heightened turbulence in financial markets or a rise in costs as a result of negotiated wage increases indicate that confidence in monetary policy is in jeopardy. The fact that academic research is devoting more attention to monetary policy under uncertainty is useful for us practitioners.
Encik Adnan Zaylani Mohamad Zahid: Islamic finance - future trend Keynote address by Mr Encik Adnan Zaylani Mohamad Zahid, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the 13th Kuala Lumpur Islamic Finance Forum 2016 (KLIFF) "Islamic Finance - Future Trend", Kuala Lumpur, 21 November 2016. * * * It is my pleasure; and an honour to be given the opportunity to speak at this forum today. Since the first introduction of KLIFF, more than a decade ago the event has gained recognition as a prestigious annual gathering for industry experts and key players in Islamic finance. I therefore wish to congratulate the organisers for its success in organising this event and maintaining its momentum. This year, in line with the chosen theme deliberations in the forum will revolve around strategies to elevate Islamic finance to the next level. As we are now at an important crossroads in Islamic finance, its continued dynamism in the journey ahead, requires the industry to strategically respond to the changing requirements of the global economy. My remarks today centres on the future trend of Islamic finance. In charting our growth for the industry, I will reflect on our achievements; and offer some thoughts on key areas that can accelerate the industry forward. I would then deliberate on the key underpinnings for the industry to successfully meet the intended objectives, in my conclusion.