In this paper we illustrate, using a simple model of monetary policy, the welfare costs of the private sector and/or the central bank being uncertain about the natural level of output. It turns out that monetary policy strategies that put less weight on output stabilisation can offset some of...

Top-down stress testing is one way of assessing the resilience of the financial system to the risks it might face now or in the future. The Risk Assessment Model of Systemic Institutions (RAMSI) developed at the Bank of England is an example of a top-down stress-testing model and is part of the...