Social Learning and Monetary Policy at the Effective Lower Bound

Jasmina Arifovic, Alex Grimaud, Isabelle Salle and Gauthier Vermandel

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Abstract: This paper develops a model that jointly accounts for the missing disinflation in the wake of the Great Recession and the subsequently observed inflation‐less recovery. The key mechanism works through heterogeneous expectations that may durably lose their anchoring to the central bank (CB)'s target and coordinate on particularly persistent below‐target paths. The welfare cost associated with persistent low inflation may be reduced if the CB announces to the agents its target or its own inflation forecasts, as communication helps coordinate expectations. However, the CB may lose its credibility whenever its announcements become decoupled from actual inflation.

Date: 2024-02-28
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Published in Journal of Money, Credit and Banking, 2024, ⟨10.1111/jmcb.13133⟩

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Working Paper: Social Learning and Monetary Policy at the Effective Lower Bound (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04502663

DOI: 10.1111/jmcb.13133

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