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A heterogeneous expectations model is provided, where private agents facing policy ignorance have to learn about the underlying fundamentals via a signal extraction problem. The model is estimated on a U.S. data set using Bayesian approach. The empirical results imply that the improvement in...
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of this signaling effect, assuming that the central bank aims to encourage central bank borrowing to avoid inefficiencies … major results are as follows: (1) Considering the signaling effect, the central bank should set its lending rate lower than …
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