By Nicoletta Batini, Ben Martin and Chris Salmon of the Bank’s Monetary Assessment and Strategy Division.
Monetary policy-makers take decisions in an uncertain world. This has been long recognised by policy-makers and is reflected in the Inflation Report fan charts, for example, which display the many uncertainties surrounding the inflation and growth projections. But academic studies often assume that policy-makers act as if certain when determining policy. This rests on the notion that policy-makers’ uncertainty about the economy is only of one particular form.