Conference Paper

Adaptive learning and monetary policy design


Abstract: We review the recent work on interest rate setting, which emphasizes the desirability of designing policy to ensure stability under learning. Appropriately designed expectations-based rules can yield optimal rational expectations (REs) equilibria that are both determinate and stable under learning. Some simple instrument rules and approximate targeting rules also have these desirable properties. We discuss various complications in implementing optimal policy, including the observability of key variables and the required knowledge of structural parameters. An additional issue that we take up concerns the implications of expectation shocks not arising from transitional learning effects.

Keywords: Monetary policy; Interest rates;

Status: Published in Journal of money, credit, and banking, volume 35, no. 6, pt. 2, December 2003

Authors

Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Proceedings

Publication Date: 2003

Pages: 1045-1084