Briefing

Monetary policy with unknown natural rates


Abstract: The "unemployment gap" is an important factor in monetary policy decisions. But the size of the gap depends on the level of 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.

Keywords: Inflation (Finance); Monetary policy; Unemployment;

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Bibliographic Information

Provider: Federal Reserve Bank of Richmond

Part of Series: Richmond Fed Economic Brief

Publication Date: 2011

Issue: Jul

Order Number: 11-7