 Signals and learning in a new Keynesian economyJournal of Macroeconomics, 2014, vol. 40, issue C, 114-131 Abstract: This paper aims at assessing whether, and how, communication of central bank’s forecast might affect economic dynamics. In a simple new Keynesian environment it is assumed that private sector conditions its own expectations to central bank’s forecasts. Private sector’s prior expectations are estimated in each period in accordance with the adaptive learning scheme, and successively updated with a signal based on central bank’s forecasts. Using both analytical and numerical calculations it is shown that the economy’s dynamics is affected by central bank’s ability to correctly assess the effect of the signal. In particular, if the central bank takes into account the impact of signals on private agents’ expectations the economic dynamics is less volatile. Moreover, if a fundamentals based signal includes a stochastic component unrelated to the economy, the strategy of communicating expectations to the private sector may perform worst than in the case of a totally uninformative signal. Keywords: Gaussian signals; Adaptive learning; DSGE models; Monetary policy (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:40:y:2014:i:c:p:114-131 DOI: 10.1016/j.jmacro.2014.03.002 Access Statistics for this article Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos More articles in Journal of Macroeconomics from Elsevier |
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