Learning, robust monetary policy and the merit of precaution

Marine André and Meixing Dai ()

The B.E. Journal of Macroeconomics, 2018, vol. 18, issue 2, 20

Abstract: We study in a New Keynesian framework the consequences of adaptive learning for the design of robust monetary policy. Compared to rational expectations, the fact that private sector follows adaptive learning gives the central bank an additional intertemporal trade-off between optimal behavior in the present and in later periods thanks to its ability to manipulate future inflation expectations. We show that adaptive learning imposes a more restrictive constraint on monetary policy robustness to ensure the dynamic stability of the equilibrium than under rational expectations but strengthens the argument in favor of a more aggressive monetary policy when the central bank fears for model misspecifications.

Keywords: adaptive learning; model uncertainty; optimal monetary policy; robust control (search for similar items in EconPapers)
JEL-codes: C62 D83 D84 E52 E58 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://doi.org/10.1515/bejm-2016-0236 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
Working Paper: Learning, robust monetary policy and the merit of precaution (2018)
Working Paper: Learning, robust monetray policy and the merit of precaution (2016)
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: https://EconPapers.repec.org/RePEc:bpj:bejmac:v:18:y:2018:i:2:p:20:n:3

Ordering information: This journal article can be ordered from
https://www.degruyter.com/view/j/bejm

DOI: 10.1515/bejm-2016-0236

Access Statistics for this article

The B.E. Journal of Macroeconomics is currently edited by Arpad Abraham and Tiago Cavalcanti

More articles in The B.E. Journal of Macroeconomics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().