Bounded rationality and parameters’ uncertainty in a simple monetary policy model

Domenico Colucci and Vincenzo Valori ()

No 2012-03, DiMaD Working Papers from Dipartimento di Matematica per le Decisioni, Universita' degli Studi di Firenze

Abstract: We study a simple monetary model in which a central bank faces a boundedly rational private sector and has the goal of stabilizing inflation. The system’s dynamics is generated by the interaction of the expectations about inflation of the various agents involved. A modest degree of heterogeneity in such expectations is found to have interesting consequences, in particular when the central bank is uncertain about the relevant behavioral parameters. We find that a simple heuristic based on mean and variance of the distribution of behavioural parameters stabilizes the system for a wide parametric region.

Keywords: inflation targeting; monetary policy; adaptive expectations; heterogeneous agents (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2012-02
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.dmd.unifi.it/RePEc/flo/WorkingPapers/2012/DiMaDWP2012-03.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:flo:wpaper:2012-03

Access Statistics for this paper

More papers in DiMaD Working Papers from Dipartimento di Matematica per le Decisioni, Universita' degli Studi di Firenze
Contact information at EDIRC.
Series data maintained by Andrey Sarychev ().