Uncertainty and monetary policy

In any meeting of monetary policymakers, uncertainty is likely to play an important role in their deliberations.According to Alan Greenspan (2003), “Uncertainty is not just an important feature of the monetary policy landscape; it is the defining characteristic of that landscape. ” In fact, the recognition that all monetary policymakers must bow to the presence of uncertainty appears to underlie Greenspan’s (2003) view that central banks are driven to a “risk-management ” approach to policy, whereby policymakers “need to reach a judgment about the probabilities, costs, and the benefits of the various possible outcomes under alternative choices for policy.” Uncertainty comes in many forms. One obvious