Should Private Expectations Concern Central Bankers?
AbstractWe analyze the standard New Keynesian economy adjusted by a financial intermediation sector, heterogenous, imperfect knowledge, and adaptive learning. We consider two groups of agents (i) private agents (households, firms, private banks) and (ii) the central bank who differ in their knowledge and expectations. The monetary-policy transmission is non-trivial in this environment. The interest rate directly affecting the decisions of households and firms is influenced by the private banks expectations, and the monetary policy may get distorted. The basic finding suggests the higher knowledge heterogeneity, the less active monetary policy should be in order to stabilize the economy. This contrasts the standard literature with homogenous knowledge and expectations.
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Bibliographic InfoPaper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp277.
Date of creation: Oct 2005
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More information through EDIRC
Imperfect and heterogeneous knowledge; adaptive learning; monetary policy.;
Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-20 (All new papers)
- NEP-CBA-2005-12-20 (Central Banking)
- NEP-FMK-2005-12-20 (Financial Markets)
- NEP-MAC-2005-12-20 (Macroeconomics)
- NEP-MON-2005-12-20 (Monetary Economics)
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.:
- Preston, Bruce, 2006. "Adaptive learning, forecast-based instrument rules and monetary policy," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 507-535, April.
- Giuseppe Ferrero, 2004.
"Monetary Policy and the Transition to Rational Expectations,"
Temi di discussione (Economic working papers)
499, Bank of Italy, Economic Research and International Relations Area.
- Giuseppe Ferrero, 2004. "Monetary policy and the transition to rational expectations," Computing in Economics and Finance 2004 19, Society for Computational Economics.
- Giuseppe Ferrero, 2004. "Monetary Policy and the Transition to Rational Expectations," Econometric Society 2004 North American Summer Meetings 101, Econometric Society.
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