Monetary Policy, Judgment, and Near-Rational Exuberance
AbstractWe study how the use of judgment or "add-factors" in macroeconomic forecasting may disturb the set of equilibrium outcomes when agents learn using recursive methods. We examine the possibility of a new phenomenon, which we call exuberance equilibria, in the New Keynesian monetary policy framework. Inclusion of judgment in forecasts can lead to self-fulfilling fluctuations in a subset of the determinacy region. We study how policymakers can minimize the risk of exuberance equilibria.
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 98 (2008)
Issue (Month): 3 (June)
Other versions of this item:
- James B. Bullard & George W. Evans & Seppo Honkapohja, 2007. "Monetary policy, judgment and near-rational exuberance," Working Papers 2007-008, Federal Reserve Bank of St. Louis.
- E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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- Cars Hommes & Mei Zhu, 2013.
"Behavioral Learning Equilibria,"
Tinbergen Institute Discussion Papers
13-014/II, Tinbergen Institute.
- Bullard, James & Evans, George W. & Honkapohja, Seppo, 2010.
"A Model Of Near-Rational Exuberance,"
Cambridge University Press, vol. 14(02), pages 166-188, April.
- James B. Bullard & George W. Evans & Seppo Honkapohja, 2007. "A model of near-rational exuberance," Working Papers 2007-009, Federal Reserve Bank of St. Louis.
- James Bullard & George W. Evans & Seppo Honkapohja, 2009. "A Model of Near-Rational Exuberance," CDMA Working Paper Series 200902, Centre for Dynamic Macroeconomic Analysis.
- Evans, George & Bullard, James & Honkapohja, Seppo, 2009. "A Model of Near-Rational Exuberance," SIRE Discussion Papers 2009-11, Scottish Institute for Research in Economics (SIRE).
- Murray, James, 2011. "Learning and judgment shocks in U.S. business cycles," MPRA Paper 29257, University Library of Munich, Germany.
- Stephen Cole & Fabio Milani, 2014. "The Misspecification of Expectations in New Keynesian Models: A DSGE-VAR Approach," Working Papers 131407, University of California-Irvine, Department of Economics.
- Gaballo, G., 2012.
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- Gaballo, Gaetano, 2013. "Good luck or good policy? An expectational theory of macro volatility switches," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2755-2770.
- repec:dgr:uvatin:2013014 is not listed on IDEAS
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