We describe a behavior of a central bank when its measures of current inflation and outputare subject to measurement … errors, in a framework of optimizing models with nominal pricestickiness. In our model, a central bank sets the interest rate … rateresponds to the central bank’s estimates of both current inflation and output gap, as advocatedby Taylor (1993)... …

Monetary policy has traditionally been viewed as theprocess by which a central bank uses its influence overthe supply … alter that amount.” In fact, the very termmonetary policy suggests a central bank’s policy toward thesupply of money or the … the termmonetary policy to refer to a central bank’s interest rate policy.[...] …