Department of Economics

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Browsing Department of Economics by Author "Carlson, John"

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    Adaptive Learning, Endogenous Inattention, and Changes in Monetary Policy
    (University of Oregon, Dept of Economics, 2006-06-22) Branch, William A.; Evans, George W., 1949-; Carlson, John; McGough, Bruce
    This paper develops an adaptive learning formulation of an extension to the Ball, Mankiw and Reis (2005) sticky information model that incorporates endogenous inattention. We show that, following an exogenous increase in the policymaker’s preferences for price vs. output stability, the learning process can converge to a new equilibrium in which both output and price volatility are lower.
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    Monetary Policy, Endogenous Inattention, and the Volatility Trade-off
    (University of Oregon, Dept of Economics, 2004-12-07) Branch, William A.; Carlson, John; Evans, George W., 1949-; McGough, Bruce
    This paper addresses the output-price volatility puzzle by studying the interaction of optimal monetary policy and agents' beliefs. We assume that agents choose their information acquisition rate by minimizing a loss function that depends on expected forecast errors and information costs. Endogenous inattention is a Nash equilibrium in the information processing rate. Although a decline of policy activism directly increases output volatility, it indirectly anchors expectations, which decreases output volatility. If the indirect effect dominates then the usual trade-off between output and price volatility breaks down. This provides a potential explanation for the "Great Moderation" that began in the 1980's.