This chapter investigates the implications of adaptive learning in the private sector's formation of inflation expectations for the conduct of monetary policy. We first review the literature that studies the implications of adaptive learning processes for macroeconomic dynamics under various...

Most studies of optimal monetary policy under learning rely on optimality conditions derived for the case when agents have rational expectations. In this paper, we derive optimal monetary policy in an economy where the Central Bank knows, and makes active use of, the learning algorithm agents...

This paper shows that belief‐driven economic fluctuations are a general feature of many determinate macroeconomic models. In environments with hidden state variables, forecast‐model misspecification can break the link between indeterminacy and sunspots by establishing the existence of...

In a standard new Keynesian framework we derive the conditions under which increasing the inflation target does not deliver expectational instability. We consider two monetary policy regimes with respect to information about the inflation target. Under transparency, there is full disclosure of...