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Robust Stability of Monetary Policy Rules under Adaptive Learning

  • Eric Gaus

    ()

    (?Ursinus College, 601 E Main Street, Collegeville, PA 19426-1000, USA;)

Recent research has explored how minor changes in expectation formation can change the stability properties of a model (Duffy and Xiao 2007; Evans and Honkapohja 2009). This article builds on this research by examining an economy subject to a variety of monetary policy rules under an endogenous learning algorithm proposed by Marcet and Nicolini (2003). The results indicate that operational versions of optimal discretionary rules are not robustly stable, as in Evans and Honkapohja (2009). In addition, commitment rules are not robust to minor changes in expectational structure and parameter values.

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File URL: http://dx.doi.org/10.4284/0038-4038-2012.071
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Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 80 (2013)
Issue (Month): 2 (October)
Pages: 439-453

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Handle: RePEc:sej:ancoec:v:80:2:y:2013:p:439-453
Contact details of provider: Web page: http://www.southerneconomic.org/
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  1. George W. Evans & Seppo Honkapohja, 2003. "Adaptive learning and monetary policy design," Proceedings, Federal Reserve Bank of Cleveland, pages 1045-1084.
  2. Adam, Klaus & Billi, Roberto M., 2004. "Optimal monetary policy under commitment with a zero bound on nominal interest rates," CFS Working Paper Series 2004/13, Center for Financial Studies (CFS).
  3. Bullard, James & Mitra, Kaushik, 2002. "Learning about monetary policy rules," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1105-1129, September.
  4. Duffy, John & Xiao, Wei, 2004. "The value of interest rate stabilization polices when agents are learning," Working Papers 2004-02, University of New Orleans, Department of Economics and Finance.
  5. Fabio Milani, 2005. "Expectations, Learning and Macroeconomic Persistence," Working Papers 050608, University of California-Irvine, Department of Economics.
  6. Guido Ascari & Tiziano Ropele, 2005. "Trend Inflation, Taylor Principle and Indeterminacy," Working Papers 93, University of Milano-Bicocca, Department of Economics, revised Oct 2005.
  7. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "Monetary policy rules and macroeconomic stability: Evidence and some theory," Economics Working Papers 350, Department of Economics and Business, Universitat Pompeu Fabra, revised May 1999.
  8. Branch, William A. & Evans, George W., 2006. "A simple recursive forecasting model," Economics Letters, Elsevier, vol. 91(2), pages 158-166, May.
  9. Christian Jensen & Bennett C. McCallum, 2002. "The Non-Optimality of Proposed Monetary Policy Rules Under Timeless-Perspective Commitment," NBER Working Papers 8882, National Bureau of Economic Research, Inc.
  10. George W. Evans & Seppo Honkapohja, 2002. "Monetary Policy, Expectations and Commitment," University of Oregon Economics Department Working Papers 2005-11, University of Oregon Economics Department, revised 06 Apr 2005.
  11. Howitt, Peter, 1992. "Interest Rate Control and Nonconvergence to Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 776-800, August.
  12. Klein, Paul, 2000. "Using the generalized Schur form to solve a multivariate linear rational expectations model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(10), pages 1405-1423, September.
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