We 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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Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number
wp277.
Find related papers by JEL classification: E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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