[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/830.html
   My bibliography  Save this paper

Learning about Monetary Policy Rules when Long-Horizon Expectations Matter

Author

Listed:
  • Preston, Bruce
Abstract
This paper considers the implications of an important source of model misspecification for the design of monetary policy rules: the assumed manner of expectations formation. In the model considered here, private agents seek to maximize their objectives subject to standard constraints and the restriction of using an econometric model to make inferences about future uncertainty. Because agents solve a multiperiod decision problem, their actions depend on forecasts of macroeconomic conditions many periods into the future, unlike the analysis of Bullard and Mitra (2002) and Evans and Honkapohja (2002). A Taylor rule ensures convergence to the rational expectations equilibrium associated with this policy if the so-called Taylor principle is satisfied. This suggests the Taylor rule to be desirable from the point of view of eliminating instability due to self-fulfilling expectations.

Suggested Citation

  • Preston, Bruce, 2005. "Learning about Monetary Policy Rules when Long-Horizon Expectations Matter," MPRA Paper 830, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:830
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/830/1/MPRA_paper_830.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Michael Woodford, 1999. "Optimal Monetary Policy Inertia," Manchester School, University of Manchester, vol. 67(s1), pages 1-35.
    2. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-1311, July.
    3. John B. Taylor, 1999. "A Historical Analysis of Monetary Policy Rules," NBER Chapters, in: Monetary Policy Rules, pages 319-348, National Bureau of Economic Research, Inc.
    4. James Bullard & Kaushik Mitra, 2007. "Determinacy, Learnability, and Monetary Policy Inertia," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(5), pages 1177-1212, August.
    5. McCallum, Bennett T., 1983. "On non-uniqueness in rational expectations models : An attempt at perspective," Journal of Monetary Economics, Elsevier, vol. 11(2), pages 139-168.
    6. Marcet, Albert & Sargent, Thomas J, 1989. "Convergence of Least-Squares Learning in Environments with Hidden State Variables and Private Information," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1306-1322, December.
    7. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bullard, James & Mitra, Kaushik, 2002. "Learning about monetary policy rules," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1105-1129, September.
    2. James Bullard & Kaushik Mitra, 2007. "Determinacy, Learnability, and Monetary Policy Inertia," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(5), pages 1177-1212, August.
    3. Bask, Mikael, 2009. "Instrument rules in monetary policy under heterogeneity in currency trade," Journal of Economics and Business, Elsevier, vol. 61(2), pages 97-111.
    4. Adnan Haider & Musleh ud Din & Ejaz Ghani, 2012. "Monetary Policy, Informality and Business Cycle Fluctuations in a Developing Economy Vulnerable to External Shocks," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 51(4), pages 609-681.
    5. Bask, Mikael & Proaño, Christian R., 2016. "Optimal monetary policy under learning and structural uncertainty in a New Keynesian model with a cost channel and inflation inertia," Journal of Economic Dynamics and Control, Elsevier, vol. 69(C), pages 112-126.
    6. Bask, Mikael & Proaño, Christian R, 2012. "Optimal Monetary Policy under Learning in a New Keynesian Model with Cost Channel and Inflation Inertia," Working Paper Series 2012:7, Uppsala University, Department of Economics.
    7. Bask, Mikael, 2009. "Instrument rules in monetary policy under heterogeneity in currency trade," Journal of Economics and Business, Elsevier, vol. 61(2), pages 97-111.
    8. Tetlow, Robert J. & von zur Muehlen, Peter, 2009. "Robustifying learnability," Journal of Economic Dynamics and Control, Elsevier, vol. 33(2), pages 296-316, February.
    9. Gasteiger, Emanuel, 2011. "Heterogeneous expectations, Taylor rules and the merit of monetary policy inertia," MPRA Paper 31004, University Library of Munich, Germany.
    10. Llosa, Luis-Gonzalo & Tuesta, Vicente, 2009. "Learning about monetary policy rules when the cost-channel matters," Journal of Economic Dynamics and Control, Elsevier, vol. 33(11), pages 1880-1896, November.
    11. Ali K. Malik, 2012. "A comparison of equilibrium under alternative monetary policy rules," Applied Economics Letters, Taylor & Francis Journals, vol. 19(14), pages 1391-1399, September.
    12. repec:zbw:bofrdp:2007_022 is not listed on IDEAS
    13. repec:zbw:bofrdp:2007_032 is not listed on IDEAS
    14. Coenen, Gunter & Wieland, Volker, 2005. "A small estimated euro area model with rational expectations and nominal rigidities," European Economic Review, Elsevier, vol. 49(5), pages 1081-1104, July.
    15. Mikael Bask, 2014. "A Case For Interest Rate Inertia In Monetary Policy," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 19(2), pages 140-159, March.
    16. Galí, Jordi, 2002. "New Perspectives on Monetary Policy, Inflation and the Business Cycle," CEPR Discussion Papers 3210, C.E.P.R. Discussion Papers.
    17. Mikael Bask & Carina Selander, 2009. "Robust Taylor rules under heterogeneity in currency trade," International Economics and Economic Policy, Springer, vol. 6(3), pages 283-313, October.
    18. Fernando Alexandre, 2002. "Monetary Policy, Investment and Non-Fundamental Shocks," NIPE Working Papers 6/2002, NIPE - Universidade do Minho.
    19. Mr. Tamim Bayoumi & Ms. Silvia Sgherri, 2004. "Deconstructing the Art of Central Banking," IMF Working Papers 2004/195, International Monetary Fund.
    20. Andreas Schabert, 2005. "Money Supply and the Implementation of Interest Rate Targets," Tinbergen Institute Discussion Papers 05-059/2, Tinbergen Institute.
    21. Andrew Levin & Volker Wieland & John C. Williams, 2003. "The Performance of Forecast-Based Monetary Policy Rules Under Model Uncertainty," American Economic Review, American Economic Association, vol. 93(3), pages 622-645, June.
    22. George W. Evans & Seppo Honkapohja, 2009. "Expectations, Learning and Monetary Policy: An Overview of Recent Research," Central Banking, Analysis, and Economic Policies Book Series, in: Klaus Schmidt-Hebbel & Carl E. Walsh & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.),Monetary Policy under Uncertainty and Learning, edition 1, volume 13, chapter 2, pages 027-076, Central Bank of Chile.

    More about this item

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G0 - Financial Economics - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:830. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.