Integrating uncertainty and monetary policy-making : Intégrer l'incertitude dans l'élaboration de la politique monétaire - la perspective d'un praticien

The latter may be taken as a proxy for the policy-maker’s “uncertainty,” but in the ideal world, this notion of uncertainty might better be described as “benign.” This is because, in the ideal situation, the error terms of the policy-maker’s model are additive and are believed to be white noise, so the policy-maker can act as if they simply do not exist. [...] A forecast of the economy is developed using all available data and analytical judgment, and the model is solved to produce a path for interest rates that will deliver the policy target, conditional on the remainder of the forecast. [...] The policy-maker simply cannot do this, given the requirement that the appropriate policy path consistent with the rest of the projection be engineered from the model over a longer horizon. [...] As noted in the introduction, a new set of risks has moved to the front burner in the wake of the global. [...] Indeed, the Bank of Canada perceives monetary policy to be the fourth line of defence against such risks; ahead of monetary policy, we would have (i) the behaviour of individual borrowers and financial intermediaries; (ii) regulatory oversight, which in Canada is the responsibility of the Superintendent of Financial Institutions and the Minister of Finance; and (iii) macroprudential policy, which