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Rational vs. long-run forecasters: Optimal monetary policy and the role of inequality

Elton Beqiraj, Giovanni Di Bartolomeo () and Carolina Serpieri ()

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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.

New Economics Papers: this item is included in nep-mon and nep-upt
Date: 2017-01
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