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Uncertainty, Economic Dynamics, and Monetary Policy Open Access

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The sources of business cycle fluctuations has been one of the central questions studied by the Neoclassical and New Keynesian schools' theories which try to explore the features of US business cycles. This question is also of great interest to monetary authority as stabilization policies may be different for different driving forces of business cycles. What is the role that uncertainty plays in the characterization of economic dynamics and the transmission of monetary policies to real economy? This dissertation develops a general equilibrium business cycle model with uncertainty about current economic fundamentals to theoretically analyze how economic dynamics can be affacted by the uncertainty, in chapter 1; incorporates the uncertainty about current economic fundamentals to a standard New Keynesian model to quantitatively investigate the implications of uncertainty for monetary policy stabilization effects and welfare effects, in chapter 2; and empirically shows how various shocks related and unrelated to economic fundamentals may contribute to the short run and long run US economic fluctuations, in chapter 3. These three chapters combine to demonstrate the importance of uncertainty in business cycle and policy evaluation analyses.

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