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The learnability criterion and monetary policy

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Author Info

  • James B. Bullard

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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Bibliographic Info

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

Volume (Year): (2006)
Issue (Month): May ()
Pages: 203-217

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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);

References

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  1. Athanasios Orphanides & John C. Williams, 2003. "The decline of activist stabilization policy: natural rate misperceptions, learning, and expectations," Working Paper Series 2003-24, Federal Reserve Bank of San Francisco.
  2. George Evans & William Branch, 2003. "Intrinsic Heterogeneity in Expectation Formation," Computing in Economics and Finance 2003 312, Society for Computational Economics.
  3. David Andolfatto & Paul Gomme, 2003. "Monetary Policy Regimes and Beliefs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(1), pages 1-30, February.
  4. Woodford, Michael, 1990. "Learning to Believe in Sunspots," Econometrica, Econometric Society, vol. 58(2), pages 277-307, March.
  5. Kaushik Mitra & James Bullard, . "Learning About Monetary Policy Rules," Discussion Papers 00/41, Department of Economics, University of York.
  6. Bullard, James & Cho, In-Koo, 2005. "Escapist policy rules," Journal of Economic Dynamics and Control, Elsevier, vol. 29(11), pages 1841-1865, November.
  7. Lars E.O. Svensson, 2003. "Monetary policy and learning," Economic Review, Federal Reserve Bank of Atlanta, issue Q3, pages 11-16.
  8. Arifovic, Jasmina, 2000. "Evolutionary Algorithms In Macroeconomic Models," Macroeconomic Dynamics, Cambridge University Press, vol. 4(03), pages 373-414, September.
  9. Fabio Milani, 2005. "Learning, Monetary Policy Rules, and Macroeconomic Stability," Macroeconomics 0508019, EconWPA.
  10. Bray, Margaret, 1982. "Learning, estimation, and the stability of rational expectations," Journal of Economic Theory, Elsevier, vol. 26(2), pages 318-339, April.
  11. Michael Woodford, 1999. "Optimal Monetary Policy Inertia," NBER Working Papers 7261, National Bureau of Economic Research, Inc.
  12. repec:cup:macdyn:v:4:y:2000:i:3:p:373-414 is not listed on IDEAS
  13. DeCanio, Stephen J, 1979. "Rational Expectations and Learning from Experience," The Quarterly Journal of Economics, MIT Press, vol. 93(1), pages 47-57, February.
  14. John Duffy & Wei Xiao, 2006. "The Value of Interest Rate Stabilization Policies When Agents are Learning," Working Papers 284, University of Pittsburgh, Department of Economics, revised Oct 2006.
  15. 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.
  16. Martin Ellison & Tony Yates, 2007. "Escaping Volatile Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(4), pages 981-993, 06.
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