Uncertainty and Monetary Policy

Uncertainty is a pervasive and increasingly critical feature of the economic landscape. Since the crisis of 2007-8, the relationship between uncertainty, the business cycle and financial markets has received much attention. Monetary policy has been particularly affected by economic uncertainty and we study the nexus between them. This project will develop and compare relevant measures of uncertainty, estimate how these measures drive key business cycle variables, understand how they might make monetary policy more or less effective, and determine the optimal response of monetary policy to uncertainty.