Adaptive Learning and Monetary Policy Design
George Evans () and
Seppo Honkapohja ()
No 3962, CEPR Discussion Papers from C.E.P.R. Discussion Papers
We review the recent work on interest rate setting, which emphasizes the desirability of designing policy to ensure stability under learning. Appropriately designed expectations-based rules can yield optimal rational expectations equilibria that are both determinate and stable under learning. Some simple instrument rules and approximate targeting rules also have these desirable properties. We discuss various complications in implementing optimal policy, including the observability of key variables and the required knowledge of structural parameters. An additional issue that we take up concerns the implications of expectation shocks not arising from transitional learning effects.
Keywords: adaptive learning; commitment; determinacy; expectations shocks; interest rate setting; stability (search for similar items in EconPapers)
JEL-codes: D84 E31 E52 (search for similar items in EconPapers)
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Working Paper: Adaptive Learning and Monetary Policy Design (2004)
Working Paper: Adaptive learning and monetary policy design (2004)
Journal Article: Adaptive learning and monetary policy design (2003)
Working Paper: Adaptive learning and monetary policy design (2002)
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