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Social Learning and Monetary Policy at the Effective Lower Bound

Author

Listed:
  • Jasmina Arifovic

    (SFU.ca - Simon Fraser University = Université Simon Fraser)

  • Alex Grimaud

    (Vienna University of Economics and Business - WU - Wirtschaftsuniversität Wien [Austria])

  • Isabelle Salle

    (University of Ottawa [Ottawa])

  • Gauthier Vermandel

    (CMAP - Centre de Mathématiques Appliquées de l'Ecole polytechnique - Inria - Institut National de Recherche en Informatique et en Automatique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique, LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique, Centre de recherche de la Banque de France - Banque de France)

Abstract

This paper develops a model that jointly accounts for the missing disinflation in the wake of the Great Recession and the subsequently observed inflation‐less recovery. The key mechanism works through heterogeneous expectations that may durably lose their anchoring to the central bank (CB)'s target and coordinate on particularly persistent below‐target paths. The welfare cost associated with persistent low inflation may be reduced if the CB announces to the agents its target or its own inflation forecasts, as communication helps coordinate expectations. However, the CB may lose its credibility whenever its announcements become decoupled from actual inflation.

Suggested Citation

  • Jasmina Arifovic & Alex Grimaud & Isabelle Salle & Gauthier Vermandel, 2024. "Social Learning and Monetary Policy at the Effective Lower Bound," Post-Print hal-04502663, HAL.
    • Handle: RePEc:hal:journl:hal-04502663
    DOI: 10.1111/jmcb.13133
    as

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    Cited by:

    1. Grimaud, Alex & Salle, Isabelle & Vermandel, Gauthier, 2025. "A Dynare toolbox for social learning expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 172(C).
    2. Evans, George & McGough, Bruce, 2025. "Social learning and expectational stability," Journal of Economic Dynamics and Control, Elsevier, vol. 172(C).
    3. LeBaron, Blake & Smith, Karen, 2025. "Learning integrated inflation forecasts in a simple multi-agent macroeconomic model," Journal of Economic Dynamics and Control, Elsevier, vol. 172(C).
    4. Petersen, Luba & Rholes, Ryan, 2022. "Macroeconomic expectations, central bank communication, and background uncertainty: A COVID-19 laboratory experiment," Journal of Economic Dynamics and Control, Elsevier, vol. 143(C).
    5. Tolga Özden, 2021. "Heterogeneous Expectations and the Business Cycle at the Effective Lower Bound," Working Papers 714, DNB.
    6. Dawid, Herbert & Hommes, Cars & Petersen, Luba, 2025. "Introduction to the special issue on computational and experimental economics in memory of Jasmina Arifovic," Journal of Economic Dynamics and Control, Elsevier, vol. 172(C).

    More about this item

    JEL classification:

    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E70 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - General

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