Research Discussion Paper – RDP 2000-10 Monetary Policy-Making in the Presence of Knightian Uncertainty

Contents

• Introduction
• The Current Literature
• Risk versus Uncertainty
• Knightian Uncertainty and Expected Utility Theory
• Implications for Monetary Policy
• The Optimal Control Problem with Bewley Preferences
• Conclusions and Further Research
• References

An earlier version of this paper was presented at the Reserve Bank of New Zealand Workshop on ‘Monetary Policy Decision-Making – Proactive or Reactive?’, 8 June 2000. We thank participants at that conference for their comments. The authors would also like to thank Geoffrey Shuetrim, Matthew Ryan, David Gruen, Guy Debelle, Luci Ellis, Charlie Bean, Jenny Wilkinson and members of the Economic Research Department for their comments and questions. As always, we bear responsibility for the content of this paper and the views expressed are not necessarily those of the Reserve Bank of Australia.