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The learnability criterion and monetary policy

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  • 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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Keywords: Monetary policy ; Rational expectations (Economic theory);

References

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  1. Arifovic, Jasmina, 2000. "Evolutionary Algorithms In Macroeconomic Models," Macroeconomic Dynamics, Cambridge University Press, vol. 4(03), pages 373-414, September.
  2. James Bullard & In-Koo Cho, 2003. "Escapist policy rules," Working Papers 2002-002, Federal Reserve Bank of St. Louis.
  3. Woodford, Michael, 2000. "Optimal Monetary Policy Inertia," Seminar Papers 666, Stockholm University, Institute for International Economic Studies.
  4. Fabio Milani, 2005. "Learning, Monetary Policy Rules, and Macroeconomic Stability," Macroeconomics 0508019, EconWPA.
  5. David Andolfatto & Paul Gomme, 2001. "Monetary policy regimes and beliefs," Working Paper 9905, Federal Reserve Bank of Cleveland.
  6. Bullard, James & Mitra, Kaushik, 2002. "Learning about monetary policy rules," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1105-1129, September.
  7. Branch, William A. & Evans, George W., 2006. "Intrinsic heterogeneity in expectation formation," Journal of Economic Theory, Elsevier, vol. 127(1), pages 264-295, March.
  8. Woodford, Michael, 1990. "Learning to Believe in Sunspots," Econometrica, Econometric Society, vol. 58(2), pages 277-307, March.
  9. 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.
  10. Orphanides, Athanasios & Williams, John C., 2004. "The decline of activist stabilization policy: Natural rate misperceptions, learning, and expectations," CFS Working Paper Series 2004/24, Center for Financial Studies (CFS).
  11. DeCanio, Stephen J, 1979. "Rational Expectations and Learning from Experience," The Quarterly Journal of Economics, MIT Press, vol. 93(1), pages 47-57, February.
  12. Lars E.O. Svensson, 2003. "Monetary policy and learning," Economic Review, Federal Reserve Bank of Atlanta, issue Q3, pages 11-16.
  13. 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.
  14. Bray, Margaret, 1982. "Learning, estimation, and the stability of rational expectations," Journal of Economic Theory, Elsevier, vol. 26(2), pages 318-339, April.
  15. repec:cup:macdyn:v:4:y:2000:i:3:p:373-414 is not listed on IDEAS
  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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