In this paper we simulate a central bank subject to the misperception that prices are indexed to past inflation in periods when firms are unable to re-optimise. It thinks, in other words, that inflation is intrinsically persistent. The central bank sets monetary policy optimally subject to this...

In this paper, we assess the ability of time-varying VAR models to correctly diagnose the source of ‘Great Moderations’ generated in simulations of a learning model. We find that, in general, they can. For example, in data sets with Great Moderations generated by good policy, the VAR...