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Two-sided Learning and Short-Run Dynamics in a New Keynesian Model of the Economy

Christian Matthes and Francesca Rondina ()

No 1705E, Working Papers from University of Ottawa, Department of Economics

Abstract: We investigate the role of asymmetric information and learning in a New Keynesian framework in which private agents and the central bank have imperfect knowledge of the economy. We assume that agents employ the data that they observe to form beliefs about the relationships that they do not know, use their beliefs to decide on actions, and revise these beliefs through a statistical learning algorithm as new information becomes available. Using simulations, we show that asymmetric information and learning can significantly change the dynamics of the variables of the model.

Keywords: Asymmetric Information; Learning; Expectations; Monetary Policy (search for similar items in EconPapers)
JEL-codes: E37 E47 E52 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2017
New Economics Papers: this item is included in nep-mac and nep-mon
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