Adaptive Learning, Endogenous Inattention, and Changes in Monetary Policy
13 Pages Posted: 18 Oct 2007
Date Written: August 2006
This paper develops an adaptive learning formulation of an extension to the Ball, Mankiw, and Reis (2005) sticky information model that incorporates endogenous inattention. We show that, following an exogenous increase in the policymaker's preferences for price vs. output stability, the learning process can converge to a new equilibrium in which both output and price volatility are lower.
Keywords: expectations, optimal monetary policy, bounded rationality, economic stability, adaptive learning
JEL Classification: E52, E31, D83, D84
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