We consider optimal policy when private sector expectations are formed through adaptive learning. Earlier research has found that adaptive learning is consistent with empirical evidence on private sector expectations. In this paper, we consider the (admittedly) extreme case of sophisticated...

This paper estimates the size and dynamics of inflation risk premia in the euro area using information from nominal and index-linked yields. Our main result is that the inflation risk premium on long-term nominal yields is nonnegligible from an economic viewpoint. Break-even inflation rates...

This paper examines the implications of adaptive learning in the New Keynesian benchmark model extended with inflation indexation to capture inflation persistence. First, we show that the price level will be stationary and follow an AR(2) process. Next, we study under which circumstances the...