In recent years, structural factors, along with those related to the financial cycle, may have changed the parameters that are crucial for monetary policy, such as the natural interest rate and the slope of the Phillips curve. This paper investigates the implications for monetary policy of the heightened uncertainty over these two parameters: should a central bank pursue a more or less aggressive policy than the optimal one in the absence of uncertainty?
The results confirm that a pragmatic approach to monetary policy decision-making is appropriate. A gradual and prudent recalibration of the expansionary stance makes it possible to reduce macroeconomic volatility when there is significant uncertainty over the monetary policy transmission mechanism and when positive shocks hit the most volatile components of the consumer price index.
