This paper provides empirical evidence on the response of monetary policymakers
to uncertainty. Using data for the UK since the introduction of inflation targets in
October 1992, we find that the impact of inflation on interest rates is lower when
inflation is more uncertain and is larger when the output gap is more uncertain.
These findings are consistent with the predictions of the theoretical literature. We
also find that uncertainty has reduced the volatility but has not affected the average
value of interest rates and argue that monetary policy would have been less
passive in the absence of uncertainty
