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Can learnability save new-Keynesian models?

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  • Cochrane, John H.

Abstract

McCallum (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 Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 56 (2009)
Issue (Month): 8 (November)
Pages: 1109-1113

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Handle: RePEc:eee:moneco:v:56:y:2009:i:8:p:1109-1113

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Web page: http://www.elsevier.com/locate/inca/505566

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Keywords: New-Keynesian model Learning Learnability Multiple equilibria Indeterminacy;

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References

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  1. John H. Cochrane, 2007. "Determinacy and Identification with Taylor Rules," NBER Working Papers 13410, National Bureau of Economic Research, Inc.
  2. McCallum, Bennett T., 2009. "Inflation determination with Taylor rules: Is new-Keynesian analysis critically flawed?," Journal of Monetary Economics, Elsevier, vol. 56(8), pages 1101-1108, November.
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Cited by:
  1. Hiona Balfoussia & Sophocles N. Brissimis & Manthos D. Delis, 2011. "The theoretical framework of monetary policy revisited," Working Papers 138, Bank of Greece.
  2. Tom Holden, 2012. "Learning from learners," School of Economics Discussion Papers 1512, School of Economics, University of Surrey.
  3. Bennett T. McCallum, 2012. "A Continuity Refinement for Rational Expectations Solutions," NBER Working Papers 18323, National Bureau of Economic Research, Inc.
  4. Airaudo, Marco & Nisticò, Salvatore & Zanna, Luis-Felipe, 2012. "Learning, Monetary Policy and Asset Prices," School of Economics Working Paper Series 2012-12, LeBow College of Business, Drexel University.
  5. Seitz, Franz & Schmidt, Markus A., 2014. "Money in modern macro models: A review of the arguments," OTH im Dialog: Weidener Diskussionspapiere 37, University of Applied Sciences Amberg-Weiden (OTH).
  6. Emanuel Gasteiger, 2013. "Heterogeneous Expectations, Optimal Monetary Policy, and the Merit of Policy Inertia," CDMA Working Paper Series 201308, Centre for Dynamic Macroeconomic Analysis.
  7. Minford, Patrick & Srinivasan, Naveen, 2011. "Ruling out unstable equilibria in New Keynesian models," Economics Letters, Elsevier, vol. 112(3), pages 247-249, September.
  8. Airaudo, Marco, 2013. "Monetary policy and stock price dynamics with limited asset market participation," Journal of Macroeconomics, Elsevier, vol. 36(C), pages 1-22.

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