Learning in Macroeconomics and Monatary Policy

The Case of an Open Economy

Fachartikel 198

Fachbereich
Volkswirtschaftslehre
Fachrichtung
Volkswirtschaftspolitik
Diskussionsbeitrag
2005
Sprache
englisch

Beschreibung

The paper demonstrates how to solve dynamic macro models with lags and
expectational leads, when individual agents cannot build rational
expectations but try to learn "true" market relations by way of continuously
adapting their incipient subjective image of the market process. Using a
simple Taylor interest rule, the conditions for expectational stability of
monetary policy in an open economy are explored. There is only limited scope
for formal learnability. Monetary stability requires that the basic real
interest rate should take into account movements of the real exchange rate.

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