Social learning expectations: microfoundations and a Dynare toolbox

Alex Grimaud, Isabelle Salle and Gauthier Vermandel

Department of Economics Working Papers from Vienna University of Economics and Business, Department of Economics

Abstract: Social learning (SL) is a behavioral model in which expectations and the resulting aggregate dynamics stem from the interactions of a large amount of heterogeneous agents. Nonetheless, this framework has so far lacked micro-foundations and a general-solution method. This paper bridges these two gaps with: (i) a micro-founded New Keynesian model with social learning expectations; (ii) a general solution method that we implement in a Dynare toolbox that solves any linear state-space model with SL expectations. The resulting framework provides a self-contained tool to contrast policy analysis under SL and rational expectations. As an illustration, optimal monetary policy rules are studied under the two expectation regimes.

Keywords: Inflation targeting; Monetary policy; Heterogeneous expectations (search for similar items in EconPapers)
JEL-codes: E32 E52 E58 E71 (search for similar items in EconPapers)
Date: 2023-07
New Economics Papers: this item is included in nep-cba
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Working Paper: Social learning expectations: microfoundations and a Dynare toolbox (2023)
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