Monetary Policy and Heterogeneous Expectations

Show full item record

Title: Monetary Policy and Heterogeneous Expectations
Author: Branch, William A.; Evans, George W., 1949-
Abstract: This paper studies the implications for monetary policy of heterogeneous expectations in a New Keynesian model. The assumption of rational expec- tations is replaced with parsimonious forecasting models where agents select between predictors that are underparameterized. In a Misspecification Equilibrium agents only select the best-performing statistical models. We demonstrate that, even when monetary policy rules satisfy the Taylor principle by adjusting nominal interest rates more than one for one with inflation, there may exist equilibria with Intrinsic Heterogeneity. Under certain conditions, there may exist multiple misspecification equilibria. We show that these findings have important implications for business cycle dynamics and for the design of monetary policy.
Description: 25, 10 p. : ill. (some col.)
URI: http://hdl.handle.net/1794/10965
Date: 2010-04-30


Files in this item

Files Size Format View
UO-2010-4_Evans_Monetary.pdf 1.510Mb PDF View/Open

This item appears in the following Collection(s)

Show full item record