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Adaptive Learning, Endogenous Inattention, and Changes in Monetary Policy

  • Wiliam Branch

    (University of Californis - Irvine)

  • John Carlson

    (Federal Reserve Bank of Cleveland)

  • George W. Evans

    ()

    (University of Oregon Economics Department)

  • Bruce McGough

    (Oregon State University)

This paper develops an adaptive learning formulation of an extension to the Ball, Mankiw and Reis (2005) sticky information model that incorporates endogenous inattention. We show that, following an exogenous increase in the policymaker's preferences for price vs. output stability, the learning process can converge to a new equilibrium in which both output and price volatility are lower.

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Paper provided by University of Oregon Economics Department in its series University of Oregon Economics Department Working Papers with number 2006-6.

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Length: 11
Date of creation: 22 Jun 2006
Date of revision:
Handle: RePEc:ore:uoecwp:2006-6
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  1. Orphanides, Athanasios & Wieland, Volker, 2000. "Inflation zone targeting," European Economic Review, Elsevier, vol. 44(7), pages 1351-1387, June.
  2. Evans, George W. & Honkapohja, Seppo, 2002. "Adaptive learning and monetary policy design," Research Discussion Papers 29/2002, Bank of Finland.
  3. William A. Branch & John Carlson & George W. Evans & Bruce McGough, 2004. "Monetary policy, endogenous inattention, and the volatility trade-off," Working Paper 0411, Federal Reserve Bank of Cleveland.
  4. Clarida, R. & Gali, J. & Gertler, M., 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory," Working Papers 98-01, C.V. Starr Center for Applied Economics, New York University.
  5. Ricardo Reis, 2005. "Inattentive Producers," 2005 Meeting Papers 290, Society for Economic Dynamics.
  6. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  7. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
  8. Lars E.O. Svensson, 2002. "What Is Wrong with Taylor Rules? Using Judgment in Monetary Policy through Targeting Rules," Working Papers 118, Princeton University, Department of Economics, Center for Economic Policy Studies..
  9. McCallum, Bennett T, 2000. "The Present and Future of Monetary Policy Rules," International Finance, Wiley Blackwell, vol. 3(2), pages 273-86, July.
  10. John C. Williams, 2012. "Monetary policy, money, and inflation," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue july9.
  11. Laurence Ball & N Gregory Mankiw & Ricardo Reis, 2003. "Monetary Policy for Inattentive Economies," Economics Working Paper Archive 491, The Johns Hopkins University,Department of Economics.
  12. Thomas Sargent & Noah Williams & Tao Zha, 2006. "The Conquest of South American Inflation," NBER Working Papers 12606, National Bureau of Economic Research, Inc.
  13. Christopher D Carroll, 2002. "Macroeconomic Expectations of Households and Professional Forecasters," Economics Working Paper Archive 477, The Johns Hopkins University,Department of Economics.
  14. 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.
  15. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  16. repec:fip:fedfsp:y:2012:i:july2 is not listed on IDEAS
  17. Athanasios Orphanides, 2002. "Monetary-Policy Rules and the Great Inflation," American Economic Review, American Economic Association, vol. 92(2), pages 115-120, May.
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