Monetary Policy and Potential Output Uncertainty: A Quantitative Assessment

This paper contributes to the recent literature that studies the quantitative implications of the imperfect information about poten-tial output for the conduct of monetary policy. By means of Bayesian techniques, a small New Keynesian model is estimated taking explic-itly account of the imperfect information problem. The estimation of the structural parameters and of the monetary authoritiesobjec-tives is key in assessing the quantitative relevance of the imperfect information problem and in evaluating the robustness of previous ex-ercises based on calibration. Finally, the model allows us to analyse the usefulness of unit labor costs as monetary policy indicator. I am specially grateful to Francesco Lippi for his patient and precious supervising activity. I also thank Fabio Canova, Stefano Neri, Antonio Guarino and seminar partici-pants at the XV International Tor Vergata Conference on Money and Banking for helpful suggestions. Of course I take full responsibility for any errors or omissions. Part of this work was done while the author was visiting the University of Pompeu Fabra, whose kind hospitality is gratefully acknowledged