DP2846 Are Non-Fundamental Equilibria Learnable in Models of Monetary Policy?
|Author(s):||Seppo Honkapohja, Kaushik Mitra|
|Publication Date:||June 2001|
|Keyword(s):||Adaptive Learning, Monetary policy, Stability, Sunspots|
|JEL(s):||D84, E31, E52|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=2846|
Recent models of monetary policy can have indeterminacy of equilibria. The indeterminacy property is often viewed as a difficulty of these models. We consider its significance using the learning approach to expectations formation by employing expectational stability as a robustness criterion for different equilibria. We derive the expectational stability and instability conditions for forward-looking multivariate models, both with and without lags, that cover a wide range of monetary policies proposed in the literature.