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Monetary Policy Rules, Learning and Stability: a Survey of the Recent Literature (In French)

  • Martin ZUMPE (GREThA UMR CNRS 5113)

This paper presents the literature about econometric learning and its impact on the performances of monetary policy rules in the framework of the new canonical macroeconomic model. Rational expectations which are a building block of the original model can thus be replaced by expectations based on estimation algorithms. The permanent updating of these estimations can be interpreted as a learning proces of the model’s agents. This learning proces induces additional dynamics into the model. The literature in question uses two criteria in order to analyse the ability of monetary policy rules to stabilise the economy: (i) uniqueness of the rational expectations equilibrium in the original model and (ii) stability in regards to learning in the modified model. Taking learning into account enables to detect shortcomings of a rule according to (ii) that would not been seen in a rational expectations model. However, the main message of the surveyed literature is that most of the results found in a rational expectations framework are robust. The paper ends with a discussion on the specific problems met in the introduction of a learning proces in the new canonical model.

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Paper provided by Groupe de Recherche en Economie Théorique et Appliquée in its series Cahiers du GREThA with number 2010-01.

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Date of creation: 2010
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Handle: RePEc:grt:wpegrt:2010-01
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  1. Evans, George W. & Honkapohja, Seppo, 2001. "Expectations and the Stability Problem for Optimal Monetary Policies," CEPR Discussion Papers 2805, C.E.P.R. Discussion Papers.
  2. Honkapohja, S. & Mitra, K., 2001. "Are Non-Fundamental Equilibria Learnable in Models of Monetary Policy?," University of Helsinki, Department of Economics 501, Department of Economics.
  3. Bennett T. McCallum, 2003. "Multiple-Solution Indeterminacies in Monetary Policy Analysis," NBER Working Papers 9837, National Bureau of Economic Research, Inc.
  4. George W. Evans & Seppo Honkapohja, 2008. "Expectations, Learning, And Monetary Policy: An Overview Of Recent Research," Working Papers Central Bank of Chile 501, Central Bank of Chile.
  5. Seppo Honkapohja & Kaushik Mitra, 2006. "Learning Stability in Economies with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 284-309, April.
  6. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," The Quarterly Journal of Economics, Oxford University Press, vol. 115(1), pages 147-180.
  7. Evans, George W. & Honkapohja, Seppo, 2002. "Adaptive learning and monetary policy design," Research Discussion Papers 29/2002, .
  8. Evans, George W. & Honkapohja, Seppo, 2003. "Adaptive Learning and Monetary Policy Design," CEPR Discussion Papers 3962, C.E.P.R. Discussion Papers.
  9. Honkapohja, Seppo & Mitra, Kaushik, 2005. "Performance of monetary policy with internal central bank forecasting," Journal of Economic Dynamics and Control, Elsevier, vol. 29(4), pages 627-658, April.
  10. Preston, Bruce, 2006. "Adaptive learning, forecast-based instrument rules and monetary policy," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 507-535, April.
  11. Chryssi Giannitsarou, 2003. "Heterogeneous Learning," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 885-906, October.
  12. Bennett T. McCallum, . "Role of the minimal state variable criterion in rational expectations models," GSIA Working Papers 1999-13, Carnegie Mellon University, Tepper School of Business.
  13. Bennett T. McCallum, 2002. "Consistent Expectations, Rational Expectations, Multiple-Solution Indeterminacies, and Least-Squares Learnability," NBER Working Papers 9218, National Bureau of Economic Research, Inc.
  14. Svensson, L.E.O., 1998. "Inflation Targeting as a Monetary Policy Rule," Papers 646, Stockholm - International Economic Studies.
  15. Robert E. Hall & N. Gregory Mankiw, 1993. "Nominal Income Targeting," NBER Working Papers 4439, National Bureau of Economic Research, Inc.
  16. Bruce Preston, 2003. "Learning about monetary policy rules when long-horizon expectations matter," FRB Atlanta Working Paper 2003-18, Federal Reserve Bank of Atlanta.
  17. Michael Woodford, 1999. "Optimal monetary policy inertia," Proceedings, Federal Reserve Bank of San Francisco.
  18. George W. Evans & Seppo Honkapohja, 2003. "Friedman's Money Supply Rule vs. Optimal Interest Rate Policy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(5), pages 550-566, November.
  19. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  20. Mitra, Kaushik, 2003. " Desirability of Nominal GDP Targeting under Adaptive Learning," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(2), pages 197-220, April.
  21. Evans , George W & Honkapohja, Seppo, 2007. "Expectations, learning and monetary policy: an overview of recent research," Research Discussion Papers 32/2007, .
  22. Evans, George W & Honkapohja, Seppo, 1992. "On the Robustness of Bubbles in Linear RE Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(1), pages 1-14, February.
  23. Marcet, Albert & Sargent, Thomas J., 1989. "Convergence of least squares learning mechanisms in self-referential linear stochastic models," Journal of Economic Theory, Elsevier, vol. 48(2), pages 337-368, August.
  24. George Evans, 1985. "Expectational Stability and the Multiple Equilibria Problem in Linear Rational Expectations Models," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1217-1233.
  25. Evans, George W. & Honkapohja, Seppo, 2007. "Expectations, learning and monetary policy : an overview of recent research," Research Discussion Papers 32/2007, Bank of Finland.
  26. Preston, Bruce, 2008. "Adaptive learning and the use of forecasts in monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 32(11), pages 3661-3681, November.
  27. Evans, George W. & Honkapohja, Seppo, 2003. "Friedman's money supply rule vs optimal interest rate policy," Research Discussion Papers 10/2003, .
  28. Bennett T. McCallum, 1997. "Issues in the Design of Monetary Policy Rules," NBER Working Papers 6016, National Bureau of Economic Research, Inc.
  29. Honkapohja, Seppo & Mitra, Kaushik, 2002. "Performance of monetary policy with internal central bank forecasting," Research Discussion Papers 3/2002, .
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