Heterogeneous expectations, Monetary policy, Multiple equilibria, Adaptive learning, G12, G14, D82, D83,

C. Sims

E. Fehr

G.W. Evans

George W. Evans

J. Bullard

J. Taylor

M. Kurz

M. Woodford

P.H. Young

R. Clarida

T.J. Sargent

W.A. Branch

W.A. Brock

William A. Branch

Springer - Publisher Connector

Monetary policy and heterogeneous expectations

Crossref

Economic Theory

25, 10 p. : ill. (some col.)This paper studies the implications for monetary policy of heterogeneous
expectations in a New Keynesian model. The assumption of rational expec-
tations is replaced with parsimonious forecasting models where agents select
between predictors that are underparameterized. In a Misspecification Equilibrium agents only select the best-performing statistical models. We demonstrate
that, even when monetary policy rules satisfy the Taylor principle by adjusting
nominal interest rates more than one for one with inflation, there may exist
equilibria with Intrinsic Heterogeneity. Under certain conditions, there may
exist multiple misspecification equilibria. We show that these findings have important implications for business cycle dynamics and for the design of monetary
policy

Branch, William A.

Evans, George W., 1949-

University of Oregon Scholars' Bank

Monetary Policy and Heterogeneous Expectations

William Branch

George Evans

Research Papers in Economics

This paper studies the implications for monetary policy of heterogeneous expectations in a New Keynesian model. The assumption of rational expectations is replaced with parsimonious forecasting models where agents select between predictors that are underparameterized. In a Misspecification Equilibrium agents only select the best-performing statistical models. We demonstrate that, even when monetary policy rules satisfy the Taylor principle by adjusting nominal interest rates more than one for one with inflation, there may exist equilibria with Intrinsic Heterogeneity. Under certain conditions, there may exist multiple misspecification equilibria. We show that these findings have important implications for business cycle dynamics and for the design of monetary policy.</p

Evans, George W.

University of St. Andrews - Pure

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Monetary policy and heterogeneous expectations

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Springer - Publisher Connector

Crossref

University of Oregon Scholars' Bank

Research Papers in Economics

University of St. Andrews - Pure

University of St. Andrews - Pure

Springer - Publisher Connector