Sources of Uncertainty in Monetary Policy Conduct in Chile

Abstract

This paper analyzes the quantitative relevance of additive and multiplicative uncertainties, and in data for monetary policy conduct in Chile. The analysis on data uncertainty focuses on the uncertainty associated with output gap estimation using real-time data and several known methods for estimating trend output. We find that revisions to the output gap are important and persistent, and that the methods based on unobservable component are those that perform with real-time data with respect to the more common ones, such as the HP filter. For the cases of additive and multiplicative uncertainties, the equations that rule the economy’s behavior are estimated with time-varying parameters and with state-dependent variances in the model’s shocks. This allows analyzing the contribution of these two types of uncertainty to total uncertainty. We find that the additive uncertainty is the most relevant in explaining total uncertainty and that the model’s shocks are state dependent.