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Discussion Paper Details

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Title: Imperfect Competition, Expectations and the Effectiveness of Monetary Policy

Author(s): Neil Rankin

Publication Date: April 1989

Keyword(s): Expectations, Imperfect Competition and Monetary Policy

Programme Area(s): International Macroeconomics

Abstract: A monetary overlapping generations model with oligopolistic imperfect competition is constructed. In general, output and employment are below their full employment levels. Three alternative expectations hypotheses are used - 'adaptive', 'monetarist' and 'pure rational' - all of which ensure no expectations errors in the steady state. All three lead to different steady states, with contrasting output responses to the rate of monetary growth, despite constraining expectations to be 'rational' in the steady state. With imperfect competition of this type, rational expectations steady states themselves, and not just transition paths to the steady state, are dependent on the 'learning' process by which expectations are form.

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Bibliographic Reference

Rankin, N. 1989. 'Imperfect Competition, Expectations and the Effectiveness of Monetary Policy'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=291