Are non-fundamental equilibria learnable in models of monetary policy? |
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Authors: | Seppo Honkapohja Kaushik Mitra |
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Institution: | a Faculty of Economics and Politics, University of Cambridge, Sidgwick Avenue, Cambridge CB3 9DD, UK b Royal Holloway College, University of London, Egham, Surrey TW20 0EX, UK |
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Abstract: | Recent models of monetary policy can have indeterminacy of equilibria, which is often viewed as a difficulty of these models. We consider the significance of indeterminacy using the learning approach to expectations formation. We employ expectational stability as a selection criterion for different equilibria and derive the expectational stability and instability conditions for forward-looking multivariate models, both without and with lags. The results are applied to several monetary policies. |
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Keywords: | E52 E31 D84 |
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