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Monetary policy and learning: Some implications for policy and research

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  • Ellis W. Tallman

Abstract

In March 2003 the Federal Reserve Bank of Atlanta hosted a conference focusing on the relationship between monetary policy and learning. The conference papers and discussions are part of an emerging literature that introduces learning-about the economy or the model used by policymakers-into dynamic macroeconomic models. In some models, monetary policymakers learn about how the economy works while in others private agents learn about the model(s) the central bank uses to formulate monetary policy. ; This article outlines key issues, raised in a 1999 book by Thomas Sargent, about how to interpret monetary policy behavior and economic performance over the past thirty years using the Phillips curve framework and different assumptions about learning. To a large extent, several conference papers follow from Sargent's work. Some conference papers focus on understanding recent inflation history, attempting to detect monetary policy's role in generating the recent, more benign inflation performance. Other conference papers investigate the role of learning behavior in a variety of settings. The article outlines the implications from some of the papers. ; Finally, the article describes economic literature relating to central bank transparency, its relevance for effective communication to the public about monetary policy, and its likely role in future learning models. Through the transparency discussion, the article foreshadows Lars Svensson's keynote address at the conference (reprinted here), citing it as a "suggested user's guide for monetary policymakers to improve policy effectiveness."

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Bibliographic Info

Article provided by Federal Reserve Bank of Atlanta in its journal Economic Review.

Volume (Year): (2003)
Issue (Month): Q3 ()
Pages: 1-9

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Handle: RePEc:fip:fedaer:y:2003:i:q3:p:1-9:n:v.88no.3

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Keywords: Monetary policy;

References

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  1. James Bullard & Stefano Eusepi, 2003. "Did the Great Inflation occur despite policymaker commitment to a Taylor rule?," Working Paper 2003-20, Federal Reserve Bank of Atlanta.
  2. Marco Del Negro, 2003. "Discussion of Cogley and Sargent's "Drifts and volatilities: Monetary policies and outcomes in the post WWII U.S."," Working Paper 2003-26, Federal Reserve Bank of Atlanta.
  3. Timothy Cogley & Thomas Sargent, . "Drifts and Volatilities: Monetary Policies and Outcomes in the Post WWII US," Working Papers 2133503, Department of Economics, W. P. Carey School of Business, Arizona State University.
  4. Thomas Sargent & Noah Williams & Tao Zha, 2009. "The Conquest of South American Inflation," Journal of Political Economy, University of Chicago Press, vol. 117(2), pages 211-256, 04.
  5. Thomas J. Sargent & Noah William, 2005. "Impacts of Priors on Convergence and Escapes from Nash Inflation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 360-391, April.
  6. Eric M. Leeper & Tao Zha, 2003. "Modest policy interventions," Working Paper 2003-24, Federal Reserve Bank of Atlanta.
  7. Stephen G. Cecchetti & Stefan Krause, 2002. "Central bank structure, policy efficiency, and macroeconomic performance: exploring empirical relationships," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 47-60.
  8. Bernanke, Ben S. & Mihov, Ilian, 1998. "The liquidity effect and long-run neutrality," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 49(1), pages 149-194, December.
  9. Romer, Christina D. & Romer, David H., 1994. "Monetary policy matters," Journal of Monetary Economics, Elsevier, vol. 34(1), pages 75-88, August.
  10. Christina D. Romer & David H. Romer, 2002. "The Evolution of Economic Understanding and Postwar Stabilization Policy," NBER Working Papers 9274, National Bureau of Economic Research, Inc.
  11. Lars E.O. Svensson, 2003. "Monetary policy and learning," Economic Review, Federal Reserve Bank of Atlanta, issue Q3, pages 11-16.
  12. Donald L. Kohn & Brian P. Sack, 2003. "Central bank talk: does it matter and why?," Finance and Economics Discussion Series 2003-55, Board of Governors of the Federal Reserve System (U.S.).
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Cited by:
  1. Stefan Krause & Fabio Mendez, 2005. "Institutions, Arrangements, and Preferences for Inflation Stability: Evidence and Lessons from a Panel Data Analysis," Emory Economics 0501, Department of Economics, Emory University (Atlanta).
  2. Richard G. Anderson & Kevin L. Kliesen, 2011. "How does the FOMC learn about economic revolutions? evidence from the New Economy Era, 1994-2001," Working Papers 2011-041, Federal Reserve Bank of St. Louis.

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