Monetary policy with heterogeneous and misspecified expectations

Alternative Conditions to Time Inconsistency Equilibrium of an International Monetary Policy

Monetary policy rule is an approach to avoid time inconsistency problem as regarded by new classical economist to choose a time plan for policy making in order to maximize households’ well-being. The foundation of time inconsistency problem is not coincidence of expectations as an ex-ante variable, which is expected variable, with actual variable as an ex-post variable. Expectations in Finn K...

Learnability of Heterogeneous Misspecification Equilibrium

This paper investigates the learnability of the equilibrium under adaptive learning with heterogeneous and misspecified models. Agents have imperfect and mutually different information sets of economic variables, so they form heterogeneous expectations under learning rules that are differently underparameterized. Under heterogeneous learning, the economy converges to a type of restricted percep...

Monetary Policy and Heterogeneous Expectations

This paper studies the implications for monetary policy of heterogeneous expectations in a New Keynesian model. The assumption of rational expectations is replaced with parsimonious forecasting models where agents select between predictors that are underparameterized. In a Misspecification Equilibrium agents only select the best-performing statistical models. We demonstrate that, even when mone...

Stock Market Uncertainty and the Analysis of Monetary Policy shock

Policy makers impose policies to improve economy circumstance in order to achieve economic goals. However, the consequence of these policies along with the intended goals will also influence expectations, fluctuations, etc., and cause changes in levels of uncertainty. The important role of the stock market in the economy, makes it important to examine its uncertainty and its interaction with mo...

Not Intended for Publication 1 Monetary Policy Analysis with Potentially Misspecified Models – Technical Appendix