Expectations, Learning and Monetary Policy: An Overview of Recent ResearchGeorge William Evans () and Seppo Mikko Sakari Honkapohja () CDMA Working Paper Series from Centre for Dynamic Macroeconomic Analysis Abstract: Expectations about the future are central for determination of current macroeconomic outcomes and the formulation of monetary policy. Recent literature has explored ways for supplementing the benchmark of rational expectations with explicit models of expectations formation that rely on econometric learning. Some apparently natural policy rules turn out to imply expectational instability of private agents’ learning. We use the standard New Keynesian model to illustrate this problem and survey the key results about interest-rate rules that deliver both uniqueness and stability of equilibrium under econometric learning. We then consider some practical concerns such as measurement errors in private expectations, observability of variables and learning of structural parameters required for policy. We also discuss some recent applications including policy design under perpetual learning, estimated models with learning, recurrent hyperinflations, and macroeconomic policy to combat liquidity traps and deflation. Keywords: Imperfect knowledge; learning; interest-rate setting; fluctuations; stability; determinacy. (search for similar items in EconPapers) Downloads: (external link) Related works: Access Statistics for this paper More papers in CDMA Working Paper Series from Centre for Dynamic Macroeconomic Analysis |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
Econpapers is hosted by the
Swedish Business School at Örebro University.