This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Robust learning stability with operational monetary policy rules

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Evans , George W (University of Oregon and University of St. Andrews)
Honkapohja, Seppo () (Bank of Finland and University of Cambridge)

Additional information is available for the following registered author(s):

Abstract

We consider the robust stability of a rational expectations equilibrium, which we define as stability under discounted (constant gain) least-squares learning, for a range of gain parameters. We find that for operational forms of policy rules, ie rules that do not depend on contemporaneous values of endogenous aggregate variables, many interest-rate rules do not exhibit robust stability. We consider a variety of interest-rate rules, including instrument rules, optimal reaction functions under discretion or commitment, and rules that approximate optimal policy under commitment. For some reaction functions we allow for an interest-rate stabilization motive in the policy objective. The expectations-based rules proposed in Evans and Honkapohja (2003, 2006) deliver robust learning stability. In contrast, many proposed alternatives become unstable under learning even at small values of the gain parameter.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.bof.fi/NR/rdonlyres/30D2D5B4-8F8B-4FFD-A013-DBCD3D86E7B5/0/0731netti.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Bank of Finland in its series Research Discussion Papers with number 31/2007.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 28 pages
Date of creation: 13 Dec 2007
Date of revision:
Handle: RePEc:hhs:bofrdp:2007_031

Contact details of provider:
Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.bof.fi/en/tutkimus
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Minna Valkama).

Related research
Keywords: commitment; interest-rate setting; adaptive learning; stability; determinacy;

Other versions of this item:

Find related papers by JEL classification:
D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
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:

References listed on IDEAS
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.:
  1. Evans, G.W. & Honkapohja ,S. & Williams, N., 2005. "Generalized Stochastic Gradient Learning," Cambridge Working Papers in Economics 0545, Faculty of Economics, University of Cambridge. [Downloadable!]
    Other versions:
  2. Woodford, Michael, 1999. "Optimal Monetary Policy Inertia," Manchester School, University of Manchester, vol. 67(0), pages 1-35, Supplemen. [Downloadable!] (restricted)
    Other versions:
  3. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December. [Downloadable!] (restricted)
    Other versions:
  4. James Bullard & Kaushik Mitra, 2002. "Learning about monetary policy rules," Working Papers 2000-001, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  5. Evans, George W & Honkapohja, Seppo, 2002. "Monetary Policy, Expectations and Commitment," CEPR Discussion Papers 3434, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Branch, William A. & Evans, George W., 2006. "A simple recursive forecasting model," Economics Letters, Elsevier, vol. 91(2), pages 158-166, May. [Downloadable!] (restricted)
    Other versions:
  7. Evans, George W & Honkapohja, Seppo, 1998. "Economic Dynamics with Learning: New Stability Results," Review of Economic Studies, Blackwell Publishing, vol. 65(1), pages 23-44, January. [Downloadable!] (restricted)
    Other versions:
  8. Fabio Milani, 2005. "Adaptive Learning and Inflation Persistence," Macroeconomics 0506013, EconWPA. [Downloadable!]
    Other versions:
  9. James B. Bullard, 2006. "The learnability criterion and monetary policy," Review, Federal Reserve Bank of St. Louis, issue May, pages 203-217. [Downloadable!]
  10. George W. Evans & Seppo Honkapohja, 2003. "Adaptive learning and monetary policy design," Proceedings, Federal Reserve Bank of Cleveland, pages 1045-1084.
    Other versions:
  11. Bennett T. McCallum & Edward Nelson, 2004. "Timeless perspective vs. discretionary monetary policy in forward-looking models," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 43-56. [Downloadable!]
    Other versions:
  12. George W. Evans & Seppo Honkapohja, 2003. "Expectations and the Stability Problem for Optimal Monetary Policies," Review of Economic Studies, Blackwell Publishing, vol. 70(4), pages 807-824, October. [Downloadable!] (restricted)
    Other versions:
  13. Fabio Milani, 2007. "Learning and Time-Varying Macroeconomic Volatility," Working Papers 070802, University of California-Irvine, Department of Economics. [Downloadable!]
  14. Evans , George W & Honkapohja, Seppo, 2007. "Expectations, learning and monetary policy: an overview of recent research," Research Discussion Papers 32/2007, Bank of Finland. [Downloadable!]
    Other versions:
  15. Milani, Fabio, 2007. "Expectations, learning and macroeconomic persistence," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 2065-2082, October. [Downloadable!] (restricted)
    Other versions:
  16. Evans George W. & Guesnerie Roger, 1993. "Rationalizability, Strong Rationality, and Expectational Stability," Games and Economic Behavior, Elsevier, vol. 5(4), pages 632-646, October. [Downloadable!] (restricted)
    Other versions:
  17. McCallum, Bennett T., 1999. "Issues in the design of monetary policy rules," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 23, pages 1483-1530 Elsevier. [Downloadable!] (restricted)
    Other versions:
  18. John Duffy & Wei Xiao, 2007. "The Value of Interest Rate Stabilization Policies When Agents Are Learning," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 2041-2056, December. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, 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.)

  1. Ippei Fujiwara & Kazuo Fukuda & Ichiro Muto & Yosuke Shigemi & Wataru Takahashi, 2008. "Frontiers in Monetary Theory and Policy: Summary of the 2008 International Conference Organized by the Institute for Monetary and Economic Studies of the Bank of Japan," IMES Discussion Paper Series 08-E-18, Institute for Monetary and Economic Studies, Bank of Japan. [Downloadable!]
  2. Evans , George W & Honkapohja, Seppo, 2007. "Expectations, learning and monetary policy: an overview of recent research," Research Discussion Papers 32/2007, Bank of Finland. [Downloadable!]
    Other versions:
Statistics
Access and download statistics

Did you know? About 2700 working paper series are listed on RePEc.

This page was last updated on 2009-11-12.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.