Optimal monetary policy and model selection in a real-time learning environment |
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Authors: | Federico Ravenna |
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Institution: | Institute of Applied Economics, HEC Montreal, Montreal, QC, H3T 2A7, Canada |
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Abstract: | We investigate how real-time parameter learning, optimal policies and the volatility of exogenous shocks affect the policymakers’ ability to distinguish across competing models of the economy. The detection speed of model misspecification depends only on the relative volatility of supply and demand shocks. |
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Keywords: | E58 |
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