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Rational vs. long-run forecasters: Optimal monetary policy and the role of inequality

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  • Beqiraj Elton
  • Di Bartolomeo Giovanni
  • Serpieri Carolina

Abstract

This paper builds a stylized simple sticky-price New Keynesian model where agents' beliefs are not homogeneous. We assume that agents choose optimal plans while considering forecasts of macroeconomic conditions over an infinite horizon. A fraction of them (boundedly rational agents) use heuristics to forecast macroeconomic variables over an infinite horizon. In our framework, we study optimal policies consistent with a second-order approximation of the policy objective from the consumers' utility function, assuming that the steady state is not distorted.

Suggested Citation

  • Beqiraj Elton & Di Bartolomeo Giovanni & Serpieri Carolina, 2017. "Rational vs. long-run forecasters: Optimal monetary policy and the role of inequality," wp.comunite 00129, Department of Communication, University of Teramo.
  • Handle: RePEc:ter:wpaper:00129
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    File URL: http://wp.comunite.it/data/wp_no_129_2017.pdf
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    References listed on IDEAS

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