Discussion paper

DP2846 Are Non-Fundamental Equilibria Learnable in Models of Monetary Policy?

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.

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Citation

Honkapohja, S and K Mitra (eds) (2001), “DP2846 Are Non-Fundamental Equilibria Learnable in Models of Monetary Policy?”, CEPR Press Discussion Paper No. 2846. https://cepr.org/publications/dp2846