William C. Brainard's article "Uncertainty and the Effectiveness of Policy" examines how uncertainty affects the effectiveness of economic policy. The author argues that traditional economic discussions often lack a clear definition of "effectiveness," typically focusing on the magnitude of policy outcomes rather than the policy-maker's ability to meet objectives. In a world of certainty, structural changes that alter the response to policy do not affect effectiveness, but in an uncertain world, uncertainty in both the response to policy and the disturbance terms significantly impacts policy outcomes. The article begins by discussing the implications of uncertainty in the response to policy actions for the selection of optimal policy. It shows that in an uncertain world, all instruments are used even with a single target variable, and optimal policy involves considering the variability of outcomes. The author uses a quadratic utility function to analyze the expected utility of policy actions, demonstrating that the optimal policy depends on the variance and covariance of policy impacts and disturbances. In the case of one target and one instrument, the optimal policy is determined by balancing the expected utility of policy actions against the variance of outcomes. The author shows that uncertainty about the response coefficient and the disturbance term leads to a more complex optimal policy than in a world of certainty. The optimal policy may involve deviating from the target to reduce variance, even if it increases the expected deviation from the target. The article then extends this analysis to multiple instruments and targets, showing that the optimal use of multiple instruments involves diversifying to minimize the coefficient of variation of policy impacts. The author also discusses the effects of structural changes on policy effectiveness, emphasizing that changes in the distribution of parameters and disturbances can significantly affect the opportunity locus and the effectiveness of policy. In conclusion, the article argues that uncertainty plays a crucial role in determining the effectiveness of economic policy, and that optimal policy in an uncertain world requires a more nuanced approach that considers both the expected utility and the variability of outcomes. The analysis highlights the importance of understanding the relationship between policy instruments, disturbances, and the target variables in order to achieve effective policy outcomes.William C. Brainard's article "Uncertainty and the Effectiveness of Policy" examines how uncertainty affects the effectiveness of economic policy. The author argues that traditional economic discussions often lack a clear definition of "effectiveness," typically focusing on the magnitude of policy outcomes rather than the policy-maker's ability to meet objectives. In a world of certainty, structural changes that alter the response to policy do not affect effectiveness, but in an uncertain world, uncertainty in both the response to policy and the disturbance terms significantly impacts policy outcomes. The article begins by discussing the implications of uncertainty in the response to policy actions for the selection of optimal policy. It shows that in an uncertain world, all instruments are used even with a single target variable, and optimal policy involves considering the variability of outcomes. The author uses a quadratic utility function to analyze the expected utility of policy actions, demonstrating that the optimal policy depends on the variance and covariance of policy impacts and disturbances. In the case of one target and one instrument, the optimal policy is determined by balancing the expected utility of policy actions against the variance of outcomes. The author shows that uncertainty about the response coefficient and the disturbance term leads to a more complex optimal policy than in a world of certainty. The optimal policy may involve deviating from the target to reduce variance, even if it increases the expected deviation from the target. The article then extends this analysis to multiple instruments and targets, showing that the optimal use of multiple instruments involves diversifying to minimize the coefficient of variation of policy impacts. The author also discusses the effects of structural changes on policy effectiveness, emphasizing that changes in the distribution of parameters and disturbances can significantly affect the opportunity locus and the effectiveness of policy. In conclusion, the article argues that uncertainty plays a crucial role in determining the effectiveness of economic policy, and that optimal policy in an uncertain world requires a more nuanced approach that considers both the expected utility and the variability of outcomes. The analysis highlights the importance of understanding the relationship between policy instruments, disturbances, and the target variables in order to achieve effective policy outcomes.