Price level targeting and adaptive learning
AbstractThis paper examines the implications of adaptive learning in the New Keynesian benchmark model extended with inflation indexation to capture inflation persistence. First, we show that the price level will be stationary and follow an AR(2) process. Next, we study under which circumstances the rational expectations equilibrium will be learnable. Finally, we examine the implications of constant gain learning for the average value of the central bank loss function. Our main finding is that the optimal rule under commitment turns out to be very robust, delivering good performance under constant gains learning
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Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 195.
Date of creation: 04 Jul 2006
Date of revision:
Adaptive learningn; price level targeting;
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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