Adaptive Learning, Heterogeneous Expectations and Forward Guidance

Eric Gaus

Working Papers from Ursinus College, Department of Economics

Abstract: In a model of the New Keynesian Phillips Curve with two E-stable solutions we demonstrate through simulations that forward guidance can ensure the economy settles on the low persistence equilibrium. While market participants use sample autocorrelation learning, the Central Bank uses least squares learning of the MSV solution. Central bank policy is a simple inflation target that is enforced based on policy makers expectations. Monetary policy on its own is not enough to ensure that the low persistence equilibrium obtains.

Keywords: adaptive learning; forward guidance; heterogeneous expectations (search for similar items in EconPapers)
JEL-codes: D83 E52 (search for similar items in EconPapers)
Pages: pages
Date: 2014-10-01
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:urs:urswps:14-03

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