Imperfect Knowledge and Monetary Policy

Otmar Issing is a member of the Executive Board, European Central Bank. Vítor Gaspar is Special Advisor, Banco de Portugal. Oreste Tristani is Principal Economist, DG Research, European Central Bank. David Vestin is Economist, DG Research, European Central Bank.

• Acknowledgments; Introduction; Outline of the two lectures; First lecture: Monetary Policy in Uncharted Territory. 1. Introduction; 2. Uncharted territory: unique historical events; 3. Achieving price stability; 4. Avoiding excess volatility in inflation, output and the interest rate; 5. Pragmatic monetarism: The Bundesbank; 6. A stability-oriented strategy: the ECB; 7. Conclusions; Second lecture: Imperfect Knowledge, Learning and Conservatism. 1. Introduction; 2. Time inconsistency, cost-push shocks and Rogoff's conservatism; 3. Empirical output gap uncertainty; 4. Output gap uncertainty, learning and conservatism; 5. Different degrees of CB's knowledge and information; 6. Conclusions; References.

'Uncertainty is the one constant facing central bankers. In this fascinating discussion of monetary policy making under uncertainty, Otmar Issing and Vítor Gaspar expose the limitations of much academic thinking on the subject and show how the ECB's monetary strategy represents a pragmatic response to the problems thrown up by our inevitably imperfect knowledge of the economy.' Charles Bean, Chief Economist and Executive Director, Bank of England