Central banks face considerable uncertainty when conducting monetary policy. The COVID-19 pandemic brought this issue back to the forefront of policy discussions. We draw from academic literature to review key sources of uncertainty and how they affect the conduct of monetary policy.
We estimate the effects of economic uncertainty on time use and discuss its macroeconomic implications. We develop a model to demonstrate that substitution between market and non-market work provides an additional insurance margin to households, weakening precautionary savings and labour supply and lowering aggregate demand, ultimately amplifying the contractionary effects of uncertainty.
