Determine the sign of policy adjustment under uncertainty and experimentation

Determine whether parameter and model uncertainty generally require a more cautious or more aggressive optimal monetary-policy response, and determine whether optimal experimentation systematically increases or decreases policy aggressiveness.

Background

The paper surveys optimal-policy analyses under parameter uncertainty, model uncertainty, imperfect information, learning, and experimentation. The sign of the policy adjustment depends on which parameters are uncertain, how uncertainty is represented, the reference model, the loss function, and whether policymakers learn through experimentation.

Although some results consistently imply stronger responses to inflation or weaker responses to noisy state variables, the direction of the response to uncertainty itself is not invariant across formulations. The same lack of generality applies to experimentation effects.

References

Two signs remain unsettled: that of the adjustment to uncertainty, attenuation or aggressiveness, which belongs to what each exercise holds fixed, and that of the experimentation component, which is not fixed even within one framework.

— Seventy Years of Identifying the Phillips Curve and the Policy Rule  (2610.06007 - Vansteenberghe, 5 Oct 2026) in Section 6, subsection “What survives every rung”