We derive the optimal monetary policy in a sticky price model when private agents follow adaptive learning. We show that this slight departure from rationality has important implications for policy design. The central bank faces a new intertemporal trade-off, not present under rational...

Most studies of optimal monetary policy under learning rely on optimality conditions derived for the case when agents have rational expectations. In this paper, we derive optimal monetary policy in an economy where the Central Bank knows, and makes active use of, the learning algorithm agents...

We show that price level stabilization is not optimal in an economy where agents have incomplete knowledge about the policy implemented and try to learn it. A systematically more accommodative policy than what agents expect generates short term gains without triggering an abrupt loss of...

We derive optimal monetary policy in a sticky price model when private agents follow adaptive learning. We show that this slight departure from rationality has important implications for policy design. The central bank faces a new intertemporal trade-off, not present under rational expectations:...

Surveys of inflation forecasts show that expectations combine forward-looking and backward-looking elements. This contradicts conventional wisdom: In the presence of rational agents, adaptive agents would be driven out of the market. In our paper, we rationalize this finding in an equilibrium...

The aim of this paper is to inspect the asset pricing properties of basic New Keynesian monetary models. Because of monetary nonneutrality, expected returns on assets must pay a risk premium not only on technology shocks, as in RBC models, but also on monetary shocks. We provide closed form...

In most of the recent macroeconomics literature, the sticky reaction of prices in response to changes in aggregate conditions has been modelled following the highly influential contribution of Calvo (1983). However, this approach has difficulties in accounting for some well-established stylized...

We show that price level stabilization is not optimal in an economy where agents have incomplete knowledge about the policy implemented and try to learn it. A systematically more accommodative policy than what agents expect generates short term gains without triggering an abrupt loss of confi...

Most studies of optimal monetary policy under learning rely on optimality conditions derived for the case when agents have rational expectations. In this paper, we derive optimal monetary policy in an economy where the Central Bank knows, and makes active use of, the learning algorithm agents...

We analyse a simplified New-Keynesian model with an unobserved aggregate cost-push shock in which firms and the central bank have different information about the shock. We consider a linear policy rule where a pure inflation targeting central bank decides how much to react to the shock given its...