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...

We re-examine optimal monetary policy when lump-sum taxes are unavailable. Under commitment, we show that, with alternative utility functions to that considered in Nicolini’s related analysis, the direction of the incentive to cheat may depend on the initial level of government debt, with low...

Saddlepath learning occurs when agents know the form but not the coefficients of the sad?dlepath relationship defining rational expectations equilibrium. Under saddlepath learning, we obtain a completely general relationship between determinacy and e-stability, and generalise Min?imum State...