Michael McMahon: Monetary Policymakers' Uncertainty

Michael McMahon (University of Oxford) will present 'Monetary Policymakers' Uncertainty', with Anna Cieslak, Stephen Hansen and Song Xiao.

Former Fed Chair, Alan Greenspan, famously declared that "uncertainty is not just an important feature of the monetary policy landscape; it is the defining characteristic of that landscape."  While monetary policy uncertainty might play an important role in determining the macroeconomic effects of uncertainty shocks in general, the identification of monetary policy uncertainty itself is complex.

Indeed, monetary policy both reacts to exogenous shocks to the economy (i.e., fundamental  uncertainty beyond its control), but also creates uncertainty that can affect the macroeconomy. To understand the effects of monetary policy uncertainty, it is therefore vital to distinguish between those types of uncertainty. This paper focuses on the first of these questions: how do policy makers respond to uncertainty?