Policymakers' Uncertainty

74 Pages Posted: 11 Oct 2021 Last revised: 1 Nov 2023

See all articles by Anna Cieslak

Anna Cieslak

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Stephen Hansen

University College London - Department of Economics

Michael McMahon

University of Oxford - Department of Economics; Centre for Economic Policy Research (CEPR)

Song Xiao

London School of Economics & Political Science (LSE)

Multiple version iconThere are 2 versions of this paper

Date Written: October 5, 2021

Abstract

We examine how uncertainty impacts decision-making by the Federal Open Market Committee (FOMC). Drawing from private deliberations, we quantify the uncertainty types the FOMC perceives and their policy impact. Inflation uncertainty prompts a tighter stance, unexplained by macroeconomic forecasts or public uncertainty indicators, particularly when expected inflation nears or exceeds the target. The FOMC's focus on upper-tail inflation risks explains this response, diverging from common models of policymaking under uncertainty. Narrative evidence connects tail-risk perceptions to credibility concerns. We thus highlight how the Fed’s risk management contributed to price stability in pre-pandemic decades, with implications for future monetary policy frameworks.

Keywords: uncertainty, monetary policy, Federal Reserve

JEL Classification: E52, E58

Suggested Citation

Cieslak, Anna and Hansen, Stephen and McMahon, Michael and Xiao, Song, Policymakers' Uncertainty (October 5, 2021). Available at SSRN: https://ssrn.com/abstract=3936999 or http://dx.doi.org/10.2139/ssrn.3936999

Anna Cieslak (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919 660 7879 (Phone)

HOME PAGE: https://sites.google.com/site/ancieslak/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Stephen Hansen

University College London - Department of Economics ( email )

Drayton House, 30 Gordon Street
30 Gordon Street
London, WC1H 0AX
United Kingdom

Michael McMahon

University of Oxford - Department of Economics ( email )

10 Manor Rd
Oxford, OX1 3UQ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Song Xiao

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1,225
Abstract Views
4,863
Rank
36,330
PlumX Metrics