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Are Non-Fundamental Equilibria Learnable in Models of Monetary Policy?

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Abstract

Recent models of monetary policy can have indeterminacy of equilibria, which is often viewed as a di±culty of these models. We consider the significance of indeterminacy using the learning approach to expectations formation. We employ expectational stability as a selection criterion for different equilibria and derive the expectational stability and instability conditions for forward-looking multivariate models, both without and with lags. The results are applied to several monetary policies.

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File URL: http://www.rhul.ac.uk/economics/Research/WorkingPapers/pdf/dpe0413.pdf
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Bibliographic Info

Paper provided by Department of Economics, Royal Holloway University of London in its series Royal Holloway, University of London: Discussion Papers in Economics with number 04/13.

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Length: 29 pages
Date of creation: Jul 2004
Date of revision: Jul 2004
Handle: RePEc:hol:holodi:0413

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Keywords: Adaptive learning; stability; sunspots; monetary policy;

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