The paper evaluates the performance of three popular monetary policy rules when the central bank is learning about the parameter values of a simple New Keynesian model. The three policies are: (1) the optimal non-inertial rule; (2) the optimal history-dependent rule; (3) the optimal price-level...

We study the problem of a central bank whose policy actions simultaneously affect the information flow about its expectations-augmented Phillips curve and its reputation for toughness in fighting inflation. In an environment with an unknown relationship between inflation surprises and output,...

In this Paper, we develop a model which explains why events in one market may trigger similar events in other markets, even though at first sight the markets appear to be only weakly related. We allow for multiple equilibria and learning dynamics in each market, and show that a jump between...

Expectations about the future are central for determination of current macroeconomic outcomes and the formulation of monetary policy. Recent literature has explored ways for supplementing the benchmark of rational expectations with explicit models of expectations formation that rely on...

We examine optimal policy in a two-country model with uncertainty and learning, where monetary policy actions affect the real economy through the real exchange rate channel. Our results show that whether policy should be cautious or activist depends on the size of one country relative to...

We respond to the challenge of explaining the Great Inflation by building a coherent framework in which both learning and uncertainty play a central role. At the heart of our story is a Federal Reserve that learns and then disregards the Phillips curve as in Sargent's Conquest of American...

This paper introduces adaptive learning and endogenous indexation in the New-Keynesian Phillips curve and studies disinflation under inflation targeting policies. The analysis is motivated by the disinflation performance of many inflation-targeting countries, in particular the gradual Chilean...

We consider inflation and government debt dynamics when monetary policy employs a global interest rate rule and private agents forecast using adaptive learning. Because of the zero lower bound on interest rates, active interest rate rules are known to imply the existence of a second, low...

In this Paper, we suggest a new motivation for why central banks appear averse to reversing recent changes in their interest rate. We show, in a standard monetary model with forward-looking expectations, data uncertainty and parameter uncertainty, that there is a learning cost associated with...

A central tenet of inflation targeting is that establishing and maintaining well-anchored inflation expectations are essential. In this paper, we reexamine the role of key elements of the inflation targeting framework towards this end, in the context of an economy where economic agents have an...