Uncertainty about Length of the Monetary Policy Transmission Lag: Implications for Monetary Policy

Arbeitspapier

Using stochastic simulations of the Reserve Bank of New Zealand’s macroeconomic model, this paper examines the implications for monetary policy of uncertainty about the length of the monetary policy transmission lag. Uncertainty is examined from two perspectives. The first investigates the robustness of efficient inflation-forecast-based rules under transmission lag uncertainty. Robustness, in this paper, is measured by the variability of the stabilisation properties of policy rules. The results indicate that rules that are less aggressive and more forward looking are more robust than rules that are more aggressive and less forward looking. By using more-robust rules, policy makers are more likely to achieve outcomes that are closer to what they expect. However, while less aggressive and more forward-looking rules are more robust, the implication for monetary policy is less clear. Typically, these more-robust policy rules have higher absolute levels of inflation variability than less-robust rules. In other words, less-robust rules typically do a better job at controlling inflation regardless of the transmission lag and regardless of what the central bank believes the transmission lag to be.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Sveriges Riksbank Working Paper Series ; No. 94

Classification and Topics

• Classification: Wirtschaft ; Monetary Policy, Central Banking, and the Supply of Money and Credit: General
• Subject: Monetary policy ; Transmission uncertainty

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ha, Yuong
• Event: Veröffentlichung
• (who): Sveriges Riksbank
• (where): Stockholm
• (when): 1999

Further information

• Handle: http://hdl.handle.net/10419/82497
• Last update: 10.03.2025, 11:43 AM CET