Uncertainty over monetary policy is ‘recessionary’, researchers say


Uncertainty over monetary policy has recessionary effects on the economy, and the effects are stronger in easing cycles than in tightening cycles, a Bank of Canada staff working paper finds.

Tatjana Dahlhaus and Tatevik Sekhposyan treat uncertainty as the predictability of policy, measured by the accuracy of the Blue Chip Financial Forecasts for the federal funds rate. They also consider a measure based on “surprise”, when the forecasters update their figures after Fed committee announcements.

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