This paper considers the implications of an important source of model misspecification for the design of monetary policy rules: the assumed manner of expectations formation. Following a considerable literature on learning, it is assumed that private agents seek to maximize their objectives...

The design of interest rate rules for conducting monetary policy have recently been examined for two key concerns. The first issue is determinacy of equilibria. Indeterminacy (multiplicity of stationary rational expectations equilibria) is a concern in models of monopolistic competition and...

When people's policy forecasts are generated by exact replication of the policymaker's decision problem, present and past policy has no effect on expectations of future policy. However, when people's policy forecasts are based on the policymaker's present and past actions, for example through...