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The learnability criterion and monetary policy

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Author Info
James B. Bullard

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Abstract

Expectations of the future play a large role in macroeconomics. The rational expectations assumption, which is commonly used in the literature, provides an important benchmark, but may be too strong for some applications. This paper reviews some recent research that has emphasized methods for analyzing models of learning, in which expectations are not initially rational but which may become rational eventually provided certain conditions are met. Many of the applications are in the context of popular models of monetary policy. The goal of the paper is to provide a largely nontechnical survey of some, but not all, of this work and to point out connections to some related research.

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Publisher Info
Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2006)
Issue (Month): May ()
Pages: 203-217
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:fip:fedlrv:y:2006:i:may:p:203-217:n:v.88no.3

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Related research
Keywords: Monetary policy ; Rational expectations (Economic theory);

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Woodford, Michael, 1990. "Learning to Believe in Sunspots," Econometrica, Econometric Society, vol. 58(2), pages 277-307, March. [Downloadable!] (restricted)
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  2. James Bullard & Kaushik Mitra, 2002. "Learning about monetary policy rules," Working Papers 2000-001, Federal Reserve Bank of St. Louis. [Downloadable!]
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  3. George Evans & William Branch, 2003. "Intrinsic Heterogeneity in Expectation Formation," Computing in Economics and Finance 2003 312, Society for Computational Economics.
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  4. George W. Evans & Seppo Honkapohja, 2002. "Adaptive Learning and Monetary Policy Design," University of Oregon Economics Department Working Papers 2002-18, University of Oregon Economics Department, revised 04 Mar 2004. [Downloadable!]
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  5. George W. Evans & Seppo Honkapohja & Noah Williams, 2005. "Generalized Stochastic Gradient Learning," University of Oregon Economics Department Working Papers 2005-17, University of Oregon Economics Department, revised 18 May 2008. [Downloadable!]
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  6. George W. Evans & Seppo Honkapohja, 2002. "Monetary Policy, Expectations and Commitment," University of Oregon Economics Department Working Papers 2002-11, University of Oregon Economics Department, revised 01 Feb 2004. [Downloadable!]
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  7. David Andolfatto & Paul Gomme, 1997. "Monetary Policy Regimes and Beliefs," Cahiers de recherche CREFE / CREFE Working Papers 48, CREFE, Université du Québec à Montréal, revised Apr 2001. [Downloadable!]
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  8. Duffy, John & Xiao, Wei, 2004. "The value of interest rate stabilization polices when agents are learning," Working Papers 2004-02, University of New Orleans, Department of Economics and Finance. [Downloadable!]
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  9. Michael Woodford, 1999. "Optimal Monetary Policy Inertia," NBER Working Papers 7261, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Bray, Margaret, 1982. "Learning, estimation, and the stability of rational expectations," Journal of Economic Theory, Elsevier, vol. 26(2), pages 318-339, April. [Downloadable!] (restricted)
  11. Martin Ellison & Tony Yates, 2007. "Escaping Volatile Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(4), pages 981-993, 06. [Downloadable!] (restricted)
  12. Athanasios Orphanides & John C. Williams, 2004. "The decline of activist stabilization policy: Natural rate misperceptions, learning and expectations," Working Paper Series 337, European Central Bank. [Downloadable!]
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  13. Lars E.O. Svensson, 2003. "Monetary policy and learning," Economic Review, Federal Reserve Bank of Atlanta, issue Q3, pages 11-16. [Downloadable!]
  14. George W. Evans & Seppo Honkapohja, 2003. "Policy Interaction, Expectations and the Liquidity Trap," University of Oregon Economics Department Working Papers 2003-33, University of Oregon Economics Department, revised 06 Jul 2004. [Downloadable!]
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  15. repec:cup:macdyn:v:4:y:2000:i:3:p:373-414 is not listed on IDEAS
  16. Bullard, James & Cho, In-Koo, 2005. "Escapist policy rules," Journal of Economic Dynamics and Control, Elsevier, vol. 29(11), pages 1841-1865, November. [Downloadable!] (restricted)
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  17. Klaus Adam & George W. Evans & Seppo Honkapohja, 2003. "Are Hyperinflationary Paths Learnable?," University of Oregon Economics Department Working Papers 2003-31, University of Oregon Economics Department, revised 22 Apr 2005. [Downloadable!]
  18. DeCanio, Stephen J, 1979. "Rational Expectations and Learning from Experience," The Quarterly Journal of Economics, MIT Press, vol. 93(1), pages 47-57, February. [Downloadable!] (restricted)
  19. Guse, Eran A., 2005. "Stability properties for learning with heterogeneous expectations and multiple equilibria," Journal of Economic Dynamics and Control, Elsevier, vol. 29(10), pages 1623-1642, October. [Downloadable!] (restricted)
  20. Arifovic, Jasmina, 2000. "Evolutionary Algorithms In Macroeconomic Models," Macroeconomic Dynamics, Cambridge University Press, vol. 4(03), pages 373-414, September. [Downloadable!]
  21. Fabio Milani, 2005. "Learning, Monetary Policy Rules, and Macroeconomic Stability," Macroeconomics 0508019, EconWPA. [Downloadable!]
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bennett T. McCallum, 2009. "Indeterminancy from inflation forecast targeting : problem or pseudo-problem?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 25-51. [Downloadable!]
  2. Evans, George W & Honkapohja, Seppo, 2008. "Expectations, Learning and Monetary Policy: An Overview of Recent Rersearch," CEPR Discussion Papers 6640, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Bask, Mikael, 2007. "Optimal monetary policy under heterogeneity in currency trade," Research Discussion Papers 21/2007, Bank of Finland. [Downloadable!]
  4. Jasmina Arifovic & James B. Bullard & Olena Kostyshyna, 2007. "Social learning and monetary policy rules," Working Papers 2007-007, Federal Reserve Bank of St. Louis. [Downloadable!]
  5. Bask, Mikael & Selander, Carina, 2007. "Robust Taylor rules in an open economy with heterogeneous expectations and least squares learning," Research Discussion Papers 6/2007, Bank of Finland. [Downloadable!]
  6. Evans , George W & Honkapohja, Seppo, 2007. "Robust learning stability with operational monetary policy rules," Research Discussion Papers 31/2007, Bank of Finland. [Downloadable!]
    Other versions:
  7. Bask, Mikael, 2007. "Instrument rules in monetary policy under heterogeneity in currency trade," Research Discussion Papers 22/2007, Bank of Finland. [Downloadable!]
    Other versions:
  8. Bennett T. McCallum, 2008. "Determinacy, Learnability, and Plausibility in Monetary Policy Analysis: Additional Results," NBER Working Papers 14164, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Peter N. Ireland, 2007. "Commentary on "Monetary policy as equilibrium selection"," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 343-348. [Downloadable!]
  10. George W. Evans & Seppo Honkapohja, 2008. "Learning and Macroeconomics," University of Oregon Economics Department Working Papers 2008-3, University of Oregon Economics Department. [Downloadable!]
  11. Mikael Bask & Carina Selander, 2009. "Robust Taylor rules under heterogeneity in currency trade," International Economics and Economic Policy, Springer, vol. 6(3), pages 283-313, October. [Downloadable!] (restricted)
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