Monetary policy, judgment and near-rational exuberance
AbstractWe study how the use of judgment or "add-factors" in macroeconomic forecasting may disturb the set of equilibrium outcomes when agents learn using recursive methods. We examine the possibility of a new phenomenon, which we call exuberance equilibria, in the New Keynesian monetary policy framework. Inclusion of judgment in forecasts can lead to self-fulfilling fluctuations in a subset of the determinacy region. We study how policymakers can minimize the risk of exuberance equilibria.
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Bibliographic InfoPaper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2007-008.
Date of creation: 2007
Date of revision:
Other versions of this item:
- James Bullard & George W. Evans & Seppo Honkapohja, 2008. "Monetary Policy, Judgment, and Near-Rational Exuberance," American Economic Review, American Economic Association, vol. 98(3), pages 1163-77, June.
- E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-31 (All new papers)
- NEP-CBA-2007-03-31 (Central Banking)
- NEP-FOR-2007-03-31 (Forecasting)
- NEP-MAC-2007-03-31 (Macroeconomics)
- NEP-MON-2007-03-31 (Monetary Economics)
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- James Bullard & George W. Evans & Seppo Honkapohja, 2009.
"A Model of Near-Rational Exuberance,"
CDMA Working Paper Series
200902, Centre for Dynamic Macroeconomic Analysis.
- Evans, George & Bullard, James & Honkapohja, Seppo, 2009. "A Model of Near-Rational Exuberance," SIRE Discussion Papers 2009-11, Scottish Institute for Research in Economics (SIRE).
- James B. Bullard & George W. Evans & Seppo Honkapohja, 2007. "A model of near-rational exuberance," Working Papers 2007-009, Federal Reserve Bank of St. Louis.
- Cars Hommes & Mei Zhu, 2013. "Behavioral Learning Equilibria," Tinbergen Institute Discussion Papers 13-014/II, Tinbergen Institute.
- Murray, James, 2011. "Learning and judgment shocks in U.S. business cycles," MPRA Paper 29257, University Library of Munich, Germany.
- repec:dgr:uvatin:2013014 is not listed on IDEAS
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