In adaptive learning literature it has been argued that the intensity of a Central Bank's (CB) interest rate response to expected inflation must be more than proportional. This article provides reassurance to the CB to some extent, showing that if it learns in a more sophisticated way than with...

In adaptive learning literature it has been argued that the intensity of a Central Bank's (CB) interest rate response to expected inflation must be more than proportional. This article provides reassurance to the CB to some extent, showing that if it learns in a more sophisticated way than with...

Central banks wish to avoid self-fulfilling fluctuations. Interest rate rules with a unit response to real rates achieve this under the weakest possible assumptions about the behaviour of households and firms. They are robust to household heterogeneity, hand-to-mouth consumers, non-rational...