Optimal monetary policy when agents are learning

Arbeitspapier

We derive the optimal monetary policy in a sticky price model when private agents follow adaptive learning. We show that this slight departure from rationality has important implications for policy design. The central bank faces a new intertemporal trade-off, not present under rational expectations: it is optimal to forego stabilizing the economy in the present in order to facilitate private sector learning and thus ease the future intratemporal inflation-output gap trade-offs. The policy recommendation is robust: the welfare loss entailed by the optimal policy under learning if the private sector actually has rational expectations is much smaller than if the central bank mistakenly assumes rational expectations when in fact agents are learning.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 3072

Classification and Topics

• Classification: Wirtschaft ; Existence and Stability Conditions of Equilibrium ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness ; Expectations; Speculations ; Monetary Policy
• Subject: optimal monetary policy ; learning ; rational expectations ; Geldpolitik ; Inflationserwartung ; Lernprozess ; Adaptive Erwartung ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Molnár, Krisztina ; Santoro, Sergio
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/38973
• Last update: 10.03.2025, 11:42 AM CET