Arbeitspapier
Interest Rate Rules and Macroeconomic Stability under Heterogeneous Expectations
The recent macroeconomic literature stresses the importance of managing heterogeneous expectations in the formulation of monetary policy. We use a stylized macro model of Howitt (1992) to investigate inflation dynamics under alternative interest rate rules when agents have heterogeneous expectations and update their beliefs based on past performance as in Brock and Hommes (1997). The stabilizing effect of different monetary policies depends on the ecology of forecasting rules, on agents' sensitivity to differences in forecasting performance and on how aggressively the monetary authority sets the nominal interest rate in response to inflation. In particular, if the monetary authority only responds weakly to inflation, a cumulative process with rising inflation is likely. On the other hand, a Taylor interest rate rule that sets the interest rate more than point for point in response to inflation stabilizes inflation dynamics, but does not always lead the system to converge to the rational expectations equilibrium as multiple equilibria may persist, even when a fully rational, but costly, expectations rule is part of the ecology of forecasting strategies.
- Sprache
-
Englisch
- Erschienen in
-
Series: Tinbergen Institute Discussion Paper ; No. 09-040/1
- Klassifikation
-
Wirtschaft
Monetary Policy
Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
Expectations; Speculations
Existence and Stability Conditions of Equilibrium
- Thema
-
Heterogeneous Expectations
Monetary Policy
Cumulative Process
Taylor Rule
Inflationserwartung
Beschränkte Rationalität
Taylor-Regel
Gleichgewicht
Theorie
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Anufriev, Mikhail
Assenza, Tiziana
Hommes, Cars
Massaro, Domenico
- Ereignis
-
Veröffentlichung
- (wer)
-
Tinbergen Institute
- (wo)
-
Amsterdam and Rotterdam
- (wann)
-
2009
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:44 MEZ
Datenpartner
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Objekttyp
- Arbeitspapier
Beteiligte
- Anufriev, Mikhail
- Assenza, Tiziana
- Hommes, Cars
- Massaro, Domenico
- Tinbergen Institute
Entstanden
- 2009
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