The Science of Monetary Policy: An Imperfect Knowledge Perspective

Stefano Eusepi and Bruce Preston

Journal of Economic Literature, 2018, vol. 56, issue 1, 3-59

Abstract: This paper reevaluates the basic prescriptions of monetary policy design in the new Keynesian paradigm through the lens of imperfect knowledge. We show that while the basic logic of monetary policy design under rational expectations continues to obtain, perfect knowledge and learning can limit the set of policies available to central banks, rendering expectations management in general more difficult. Nonetheless, the desirability of some form of price-level targeting, inducing inertia in interest-rate policy, paramount under rational expectations, is robust to the assumption of imperfect knowledge.

JEL-codes: D84 E13 E31 E52 E58 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/jel.20160889
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Citations: View citations in EconPapers (78)

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Related works:
Working Paper: The science of monetary policy: an imperfect knowledge perspective (2016)
Working Paper: The science of monetary policy: an imperfect knowledge perspective (2016)
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