Difference rules thereby avoid introducing the policy mis-calibration and resulting noise that stems from using poorly estimated or mis-specified R- and Y-star measures.23  10  All speeches are available online at www.bankofengland.co.uk/news/speeches  10  I will explore briefly this idea in a narrower setting using a version of a model built by my colleagues Rich Harrison, Martin Seneca and Matt Waldron (a sketch of which is provided in the Annex). Essentially, this is a canonical three equation new Keynesian macroeconomic model estimated for the UK, with a few additional features to ensure more realistic persistence in inflation and output. Although estimated, I would emphasise that this is a stylised representation of the UK economy – I am using it for illustrative purposes, rather than to foreshadow any specific policy decision. In the background of the model are ‘cost-push’ shocks that introduce a difficult trade-off between inflation volatility around target and output gap volatility, which monetary policymakers seek to manage by varying the policy rate. My focus here is on the treatment by monetary policy of shocks to the R- and Y-star concepts embodied in this model. One can think of these as risk premium and productivity shocks. The crucial feature is that shocks to these starred variables have two components: one temporary, the other persistent. Neither policymakers nor households and firms can observe these shocks in real time. Rather, they have to learn about the persistence of the driving shocks over time on the basis of how the observed data evolve.
As this discussion illustrates, the literal-but-symmetric interpretation of the MINIMAX approach to robust monetary policy would imply very ‘activist’ policy responses in the face of uncertainty. In this framework, from having their foot to the floor with the monetary accelerator, policymakers might have to switch in short order to stamping on the monetary brake. Unsurprisingly, on my reading, that characterisation also finds little sympathy in policymaking circles. In the interests of avoiding tail outcomes, such activism threatens to induce volatility into monetary policy, financial markets, the economy and inflation in other circumstances, which is both costly and hard to communicate. But the research on monetary policy and uncertainty as a whole has influenced the discussion and conduct of policy in practice. I would pick out a number of lessons that have been drawn.  The magnitude and evolution of uncertainty and risk can, do and should influence monetary policy decisions.  Not all uncertainty is the same. The way uncertainty influences monetary policy decisions depends on the circumstances and the nature of the uncertainty – its source, its persistence, its magnitude – that is being faced  Monetary policy should not be paralysed in the face of uncertainty. If policymakers were to wait until all uncertainty is resolved before taking decisions, they would wait forever.  At the same time, there is no general rule that says policy responses should either be attenuated or more activist in the face of uncertainty.