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Optimal Monetary Policy Rules: The Problem of Stability Under Heterogeneous Learning

  • Anna Bogomolova
  • Dmitri Kolyuzhnov
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    In this paper we extend the analysis of optimal monetary policy rules in terms of stability of an economy, started by Evans and Honkapohja (2003b), to the case of heterogeneous private agents learning. Following Giannitsarou (2003), we pose the question about the applicability of the representative agent hypothesis to learning. This hypothesis was widely used in learning literature at early stages to demonstrate convergence of an economic system under adaptive learning of agents to one of the rational expectations equilibria in the economy. We test these monetary policy rules in the general setup of the New Keynesian model that is a work horse of monetary policy models today. It is of interest to see that the results obtained by Evans and Honkapohja (2003b) for the homogeneous learning case are replicated for the case when the representative agent hypothesis is lifted.

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    File URL: http://www.cerge-ei.cz/pdf/wp/Wp379.pdf
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    Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp379.

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    Date of creation: Dec 2008
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    Handle: RePEc:cer:papers:wp379
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    1. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," NBER Working Papers 7147, National Bureau of Economic Research, Inc.
    2. Richard Clarida & Jordi Gali & Mark Gertler, 2002. "A Simple Framework for International Monetary Policy Analysis," NBER Working Papers 8870, National Bureau of Economic Research, Inc.
    3. Chryssi Giannitsarou, 2003. "Heterogeneous Learning," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 885-906, October.
    4. James Bullard & Kaushik Mitra, 2002. "Learning about monetary policy rules," Working Papers 2000-001, Federal Reserve Bank of St. Louis.
    5. Seppo Honkapohja & Kaushik Mitra, 2002. "Learning Stability in Economies with Heterogenous Agents," CESifo Working Paper Series 772, CESifo Group Munich.
    6. Carl E. Walsh, 2003. "Monetary Theory and Policy, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232316, June.
    7. Johnson, Charles R., 1974. "Sufficient conditions for D-stability," Journal of Economic Theory, Elsevier, vol. 9(1), pages 53-62, September.
    8. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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