A fundamentals based monetary policy rule, which would be the optimal monetary policy without commitment when private agents have perfectly rational expectations, is unstable if in fact these agents follow standard adaptive learning rules. This problem can be overcome if private expectations are...

Recent models of monetary policy have analyzed the desirability of di?erent optimal and ad hoc interest rules under the restrictive assumption that forecasts of the private sector and the central bank are homogenous. This paper studies the implications of heterogeneity in forecasting by the...

Recent models of monetary policy can have indeterminacy of equilibria, which is often viewed as a di±culty of these models. We consider the significance of indeterminacy using the learning approach to expectations formation. We employ expectational stability as a selection criterion for...

Honkapohja and Mitra (2003) have analyzed the desirability of optimal and ad hoc interest rules in monetary policy when the forecasts of the private sector and the central bank are heterogenous but information is symmetric. Here we analyze the case of asymmetric information in which one party...

An economy exhibits structural heterogeneity when the forecasts of di?erent agents have different effects on the determination of aggregate variables. We study the important case of economies in which agents’ behavior depends on forecasts of aggregate variables and show how di?erent forms of...