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We derive the optimal monetary policy in a sticky price model when private agents follow adaptive learning. We show that this slight departure from rationality has important implications for policy design. The central bank faces a new intertemporal trade-off, not present under rational...
Persistent link: https://www.econbiz.de/10010271452
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...
Persistent link: https://www.econbiz.de/10010494352
This paper provides a survey of results concerning eductive stability of equilibrium in an abstract 2-period exchange economy. Eductive stability is based on the Common Knowledge considerations underlying the work reported in the book Assessing rational expectations: eductive stabiltiy in...
Persistent link: https://www.econbiz.de/10014049374
This paper models expectation formation by taking into account that agents produce heterogeneous expectations due to model uncertainty, informational frictions and different capacities for processing information. We show that there are two general classes of steady states within this framework:...
Persistent link: https://www.econbiz.de/10013099023
We propose behavioral learning equilibria as a plausible explanation of coordination of individual expectations and aggregate phenomena such as excess volatility in stock prices and high persistence in inflation. Boundedly rational agents use a simple univariate linear forecasting rule and...
Persistent link: https://www.econbiz.de/10013088595
Markov-switching rational expectations (MSRE) models can yield fresh insights beyond what linear rational expectations (LRE) models have done for macroeconomics, as Davig and Leeper (2007) and Farmer, Waggoner and Zha (2009), among others, have noted and predicted. A lack of tractable...
Persistent link: https://www.econbiz.de/10013070801
Persistent link: https://www.econbiz.de/10010191433
Persistent link: https://www.econbiz.de/10008729179
The recent macroeconomic literature stresses the importance of managing heterogeneous expectations in the formulation of monetary policy. We use a stylized macro model of Howitt (1992) to investigate inflation dynamics under alternative interest rate rules when agents have heterogeneous...
Persistent link: https://www.econbiz.de/10011378358
Forward-looking RE models such as the popular New Keynesian (NK) model do not provide a unique prediction about how the model economy behaves. We need some mechanism that ensures determinacy. McCallum (2011) says it is not needed because models are learnable only with the determinate solution...
Persistent link: https://www.econbiz.de/10009583719