Optimal Monetary Policy Rules: The Problem of Stability Under Heterogeneous Learning
AbstractIn this paper we extend the analysis of optimal monetary policy rules in terms of stability of an economy, started by Evans and Honkapohja (2003b), to the case of heterogeneous private agents learning. Following Giannitsarou (2003), we pose the question about the applicability of the representative agent hypothesis to learning. This hypothesis was widely used in learning literature at early stages to demonstrate convergence of an economic system under adaptive learning of agents to one of the rational expectations equilibria in the economy. We test these monetary policy rules in the general setup of the New Keynesian model that is a work horse of monetary policy models today. It is of interest to see that the results obtained by Evans and Honkapohja (2003b) for the homogeneous learning case are replicated for the case when the representative agent hypothesis is lifted.
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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 wp379.
Date of creation: Dec 2008
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Monetary policy rules; new Keynesian model; adaptive learning; stability of equilibrium; heterogeneous agents.;
Find related papers by JEL classification:
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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