The science of monetary policy: an imperfect knowledge perspective

Stefano Eusepi and Bruce Preston

No 782, Staff Reports from Federal Reserve Bank of New York

Abstract: New Keynesian theory identifies a set of principles central to the design and implementation of monetary policy. These principles rely on the ability of a central bank to manage expectations precisely, with policy prescriptions typically derived under the assumption of perfect information and full rationality. However, the challenging macroeconomic environment bequeathed by the financial crisis has led many to question the efficacy of monetary policy, and, particularly, to question whether central banks can influence expectations with as much control as previously thought. In this paper, we survey the literature on monetary policy design under imperfect knowledge and asses to what degree its policy prescriptions deviate from the rational expectations benchmark.

Keywords: monetary policy; expectation formation; learning (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 (search for similar items in EconPapers)
Date: 2016-06-01
New Economics Papers: this item is included in nep-cba, nep-ger, nep-hpe, nep-mac and nep-mon
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: The Science of Monetary Policy: An Imperfect Knowledge Perspective (2018)
Working Paper: The science of monetary policy: an imperfect knowledge perspective (2016)
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