Learning Dynamics In Monetary Policy: The Robustness of an Aggressive Inflation Stabilizing Policy
Document Type
Article
Publication Date
3-1-2005
Department
Finance, Real Estate, and Business Law
Abstract
This paper investigates the effect of an aggressive inflation stabilizing monetary policy on the ability of agents to reach a rational expectations equilibrium for inflation and output. Using an adaptive learning framework we develop a model that combines a real wage contracting rigidity with an interest rate rule. We show that an AR(1) equilibrium requires more aggressive monetary policy to achieve both determinacy and learnability. This model and policy findings contrast with Bullard and Mitra's [Determinacy, learnability and monetary policy inertia (2001); Journal of Monetary Economics 49 (2002) 1105] model (no inflation persistence) and policy findings (less aggressive policy). These results suggest that aggressive policy is robust in different model specifications. (C) 2004 Elsevier Inc. All rights reserved.
Publication Title
Journal of Macroeconomics
Volume
27
Issue
1
First Page
143
Last Page
151
Recommended Citation
Wang, M.,
Wong, M. S.
(2005). Learning Dynamics In Monetary Policy: The Robustness of an Aggressive Inflation Stabilizing Policy. Journal of Macroeconomics, 27(1), 143-151.
Available at: https://aquila.usm.edu/fac_pubs/2861