This paper investigates monetary policy design when central bank and private-sector expectations differ. Private agents learn adaptively; the central bank has a possibly misspecified model of the economy. Successful implementation of optimal policy using inflation targeting rules requires the...

The paper provides evidence on the extent to which inflation expectations generated by a standard Christiano et al. (2005)/Smets and Wouters (2003)-type DSGE model are in line with what observed in the data. We consider three variants of this model that differ in terms of the behavior of, and...