Can learnability save new-Keynesian models?
AbstractMcCallum (2009) argues that "learnability" can save new-Keynesian models from indeterminacies. He claims the unique bounded equilibrium is learnable, and the explosive equilibria are not. However, he assumes that agents can directly observe the monetary policy shock. Reversing this assumption, I find the opposite: the bounded equilibrium is not learnable and the unbounded equilibria are learnable. More generally, I argue that a threat by the Fed to move to an "unlearnable" equilibrium for all but one value of inflation is a poor foundation for choosing the bounded equilibrium of a new-Keynesian model.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Monetary Economics.
Volume (Year): 56 (2009)
Issue (Month): 8 (November)
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Web page: http://www.elsevier.com/locate/inca/505566
New-Keynesian model Learning Learnability Multiple equilibria Indeterminacy;
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- E0 - Macroeconomics and Monetary Economics - - General
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