Monetary Policy, Indeterminacy and Learning

George William Evans () and Bruce McGough ()

University of Oregon Economics Department Working Papers from University of Oregon Economics Department

Abstract: Forward-looking monetary models with Taylor-type interest rate rules are known to generate indeterminacies, with a potential dependence on extraneous "sunspots," for some structural and policy parameters. We investigate the stability of these solutions under adaptive learning, focusing on "common factor" or "resonant frequency" representations in which the observed sunspot has a suitable time-series structure. We consider specifications incorporating both lagged and expected inflation in the Phillips Curve, and both expected and inertial elements in the policy rule. We find that some policy rules can indeed lead to learnable sunspot solutions and we investigate the conditions under which this phenomenon arises.

Keywords: Monetary Policy; sunspots; expectations; learning; stability (search for similar items in EconPapers)
JEL-codes: E52 E32 D83 D84 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
Date: 2003-10-11
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Related works:
Working Paper: Monetary Policy, Indeterminacy and Learning (2003)
Journal Article: Monetary policy, indeterminacy and learning (2005)
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