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Monetary Policy With Unknown Natural Rates, No. 11-07

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Monetary Policy With Unknown Natural Rates, No. 11-07

DATE: July 2011

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ABSTRACT: The "unemployment gap" is an important factor in monetary policy decisions. But the size of the gap depends on the natural rate of unemployment, which is inherently unobservable. The uncertainty surrounding estimates of the natural rate, and the costs of mismeasuring it, may recommend a policy rule that responds to the rate of change in the actual unemployment rate rather than to the implied unemployment gap.

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Lubik, Thomas A. , Romero, Jessica Sackett and Federal Reserve Bank of Richmond. "Monetary Policy With Unknown Natural Rates, No. 11-07," Economic Brief (July 2011). https://fraser.stlouisfed.org/title/6034/item/583890, accessed on May 3, 2024.

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