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The B.E. Journal of Macroeconomics

Editor-in-Chief: Cavalcanti, Tiago / Kambourov, Gueorgui

Ed. by Abraham, Arpad / Carceles-Poveda , Eva / Debortoli, Davide / Lambertini, Luisa / Nimark, Kristoffer / Wang, Pengfei

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1935-1690
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Learning, robust monetary policy and the merit of precaution

Marine Charlotte AndréORCID iD: http://orcid.org/0000-0003-4554-7598 / Meixing Dai
Published Online: 2018-02-06 | DOI: https://doi.org/10.1515/bejm-2016-0236

Abstract

We study in a New Keynesian framework the consequences of adaptive learning for the design of robust monetary policy. Compared to rational expectations, the fact that private sector follows adaptive learning gives the central bank an additional intertemporal trade-off between optimal behavior in the present and in later periods thanks to its ability to manipulate future inflation expectations. We show that adaptive learning imposes a more restrictive constraint on monetary policy robustness to ensure the dynamic stability of the equilibrium than under rational expectations but strengthens the argument in favor of a more aggressive monetary policy when the central bank fears for model misspecifications.

Keywords: adaptive learning; model uncertainty; optimal monetary policy; robust control

JEL Classification: C62; D83; D84; E52; E58

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About the article

Published Online: 2018-02-06


Citation Information: The B.E. Journal of Macroeconomics, 20160236, ISSN (Online) 1935-1690, DOI: https://doi.org/10.1515/bejm-2016-0236.

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