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Expectations, learning and monetary policy: an overview of recent research

Evans, George W; Honkapohja, Seppo - Suomen Pankki - 2007

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...

Persistent link: https://www.econbiz.de/10005419689

Friedman's money supply rule vs optimal interest rate policy

Evans, George W.; Honkapohja, Seppo - Suomen Pankki - 2003

Using New Keynesian models, we compare Friedman’s k-percent money supply rule to optimal interest rate setting, with respect to determinacy, stability under learning and optimality. We first review the recent literature. Open-loop interest rate rules are subject to indeterminacy and...

Persistent link: https://www.econbiz.de/10005423681

Adaptive learning and monetary policy design

Evans, George W.; Honkapohja, Seppo - Suomen Pankki - 2002

We review the recent work on interest rate setting, which emphasizes the desirability of designing policy to ensure stability under private agent learning. Appropriately designed expectations based rules can yield optimal rational expectations equilibria that are both determinate and stable...

Persistent link: https://www.econbiz.de/10005648862

Robust learning stability with operational monetary policy rules

Evans, George W; Honkapohja, Seppo - Suomen Pankki - 2007

We consider the robust stability of a rational expectations equilibrium, which we define as stability under discounted (constant gain) least-squares learning, for a range of gain parameters. We find that for operational forms of policy rules, ie rules that do not depend on contemporaneous values...

Persistent link: https://www.econbiz.de/10005648984

Limited asset market participation: does it really matter for monetary policy?

Ascari, Guido; Colciago, Andrea; Rossi, Lorenza - Suomen Pankki - 2011

We study the design of monetary policy in an economy characterized by staggered wage and price contracts together with limited asset market participation (LAMP). Contrary to previous results, we find that once nominal wage stickiness, an incontrovertible empirical fact, is considered: i) the...

Persistent link: https://www.econbiz.de/10009643486

Optimal monetary policy in a hybrid New Keynesian model with a cost channel

Bask, Mikael - Suomen Pankki - 2007

model incorporating a cost channel for monetary disturbances and inflation rate expectations that are partly backward …, under discretion, the central bank has to be sufficiently inflation averse for the equilibrium to have these properties. …

Persistent link: https://www.econbiz.de/10005771140

Robust Taylor rules in an open economy with heterogeneous expectations and least squares learning

Bask, Mikael; Selander, Carina - Suomen Pankki - 2007

investigate if the unique and adaptively learnable REE is desirable in an inflation rate targeting regime in the sense that a low … and not too variable CPI inflation rate in equilibrium is achieved. The monetary authority is using a Taylor rule when … that the monetary authority should increase (decrease) the interest rate when the CPI inflation rate increases (decreases …

Persistent link: https://www.econbiz.de/10005648866

Determinacy of interest rate rules with bond transaction services in a cashless economy

Marzo, Massimiliano; Zagaglia, Paolo - Suomen Pankki - 2008

Canzoneri and Diba (2004) show that the Taylor principle is not a panacea for equilibrium determinacy in a model where bonds and money provide liquidity services to households. We consider a cashless New Keynesian model with two types of government bonds. One bond provides transaction services,...

Persistent link: https://www.econbiz.de/10005648917

A case for interest rate smoothing

Bask, Mikael - Suomen Pankki - 2007

and the CPI inflation rate, the monetary authority does not have to consider the exchange rate as long as there is …

Persistent link: https://www.econbiz.de/10005648927

Optimal monetary policy under heterogeneity in currency trade

Bask, Mikael - Suomen Pankki - 2007

of trend extrapolation, but that a less flexible inflation rate targeting may cause a multiplicity of REE. We also …

Persistent link: https://www.econbiz.de/10005648971