Monetary Policy and Heterogeneous Expectations

Show simple item record Branch, William A. Evans, George W., 1949- 2011-02-10T00:18:15Z 2011-02-10T00:18:15Z 2010-04-30
dc.description 25, 10 p. : ill. (some col.) en_US
dc.description.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. en_US
dc.language.iso en_US en_US
dc.publisher University of Oregon, Dept of Economics en_US
dc.relation.ispartofseries University of Oregon Economics Department Working Papers;2010-4
dc.subject Heterogeneous expectations en_US
dc.subject Monetary policy en_US
dc.subject Multiple equilibria en_US
dc.subject Adaptive learning en_US
dc.title Monetary Policy and Heterogeneous Expectations en_US
dc.type Working Paper en_US

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