English, Article, Journal or magazine article edition: The Dynamics of Learning in Optimal Monetary Policy Orlando Gomes; Vivaldo M. Mendes; Diana A. Mendes

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Bookmark: http://trove.nla.gov.au/version/162036
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • The Dynamics of Learning in Optimal Monetary Policy
Author
  • Orlando Gomes
  • Vivaldo M. Mendes
  • Diana A. Mendes
Physical Description
  • preprint
Notes
  • This paper analyzes the dynamic properties of a standard New Keynesian monetary policy model when private agents expectations are assumed to be formed under a learning mechanism. As pointed out in the literature, learning with decreasing gain estimators tends to lead to convergence to the rational expectations equilibrium; however, under constant gain, persistent learning dynamics prevail and nonlinear dynamics of the state variables may subsist over the long term. By assuming a gain sequence that is asymptotically constant, explicit local and global stability results are presented for two specifications of an optimal monetary policy model. In the first setting, the central bank believes that private agents possess rational expectations; while inthe second, the bank incorporates the learning rule in its optimal decisions. In such a framework we find out interesting long term results, in particular, the presence of endogenous business cycles should bestressed as an expected outcome.
  • Learning, Optimal Monetary Policy, Nonlinear Dynamics, Bifurcations and Chaos.
  • RePEc:isc:wpaper:ercwp2008
Language
  • English
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