RATIONAL VS. LONG-RUN FORECASTERS: OPTIMAL MONETARY POLICY AND THE ROLE OF INEQUALITY

Elton Beqiraj, Giovanni Di Bartolomeo () and Carolina Serpieri

Macroeconomic Dynamics, 2019, vol. 23, issue S1, 9-24

Abstract: This paper builds a stylized simple sticky-price New Keynesian model where agents' beliefs are not homogeneous. We assume that agents choose optimal plans while considering forecasts of macroeconomic conditions over an infinite horizon. A fraction of them (boundedly rational agents) use heuristics to forecast macroeconomic variables over an infinite horizon. In our framework, we study optimal policies consistent with a second-order approximation of the policy objective from the consumers' utility function, assuming that the steady state is not distorted.

Date: 2019
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Working Paper: Rational vs. long-run forecasters: Optimal monetary policy and the role of inequality (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:23:y:2019:i:s1:p:9-24_00

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