Monetary Policy in an Uncertain World

Charles Bean

Published: March 2005

In this article, Charles Bean, Bank of England Chief Economist and member of the Monetary Policy Committee, reviews and assesses the three types of uncertainty which affect monetary policymakers: uncertainty about the data; uncertainty about the nature and persistence of shocks; and uncertainty about the structure of the economy. Focusing on uncertainty about the structure of the economy, he notes the unusual stability of inflation and output growth in the past decade or so. There are a number of possible explanations, including plain good luck, structural changes in the economy and improved policymaking. The author goes on to note that the short-run trade-off between inflation and activity seems to have flattened as inflation has stabilised at low levels and he attributes this in part to improved monetary policymaking. He goes on to consider some of the policy implications of this change.