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Learning process and rational expectations: An analysis using a small macro-economic model for New Zealand [An article from: Economic Modelling]
Book Details
Author(s)O. Basdevant
PublisherElsevier
ISBN / ASINB000RR7AY0
ISBN-13978B000RR7AY1
AvailabilityAvailable for download now
Sales Rank99,999,999
MarketplaceUnited States 🇺🇸
Description
This digital document is a journal article from Economic Modelling, published by Elsevier in . The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.
Description:
The nature of expectations matters when conducting monetary policy. Models with a learning process can exhibit very different properties from models with other types of expectation rules. This paper draws on the work of Orphanides and Williams [Orphanides, A., Williams, J.C. 2002. Imperfect knowledge, inflation expectations and monetary policy, Federal Reserve Board Finance and Economics Discussion Series, 2002-27], extending it to allow for the possibility that the learning process may not be perpetual, but rather might be converging towards a rational expectations equilibrium. By modelling expectations using a learning process, we obtain that inflation expectations in New Zealand are moving towards rational expectations. The closer expectations are to rational, the more inflation can be reduced without costs, thus arguing for a rather tough policy aimed at anchoring expectations on the target.
Description:
The nature of expectations matters when conducting monetary policy. Models with a learning process can exhibit very different properties from models with other types of expectation rules. This paper draws on the work of Orphanides and Williams [Orphanides, A., Williams, J.C. 2002. Imperfect knowledge, inflation expectations and monetary policy, Federal Reserve Board Finance and Economics Discussion Series, 2002-27], extending it to allow for the possibility that the learning process may not be perpetual, but rather might be converging towards a rational expectations equilibrium. By modelling expectations using a learning process, we obtain that inflation expectations in New Zealand are moving towards rational expectations. The closer expectations are to rational, the more inflation can be reduced without costs, thus arguing for a rather tough policy aimed at anchoring expectations on the target.
