Social Learning and Monetary Policy at the Effective Lower Bound

79 Pages Posted: 19 Jan 2021 Last revised: 26 Feb 2024

See all articles by Jasmina Arifovic

Jasmina Arifovic

Simon Fraser University (SFU) - Department of Economics

Alex Grimaud

Oesterreichische Nationalbank (OeNB); TU Wien

Isabelle Salle

Government of Canada - Bank of Canada; University of Amsterdam; Tinbergen Institute

Gauthier Vermandel

CMAP, Ecole polytechnique, Institut Polytechnique de Paris; LEDa, Paris-Dauphine & PSL Universities; Banque de France

Date Written: August 25, 2023

Abstract

This paper develops a model that jointly accounts for the missing disinflation in the wake of the Great Recession and the subsequently observed inflation-less recovery. The key mechanism works through heterogeneous expectations that may durably lose their anchoring to the central bank (CB)’s target and coordinate on particularly persistent below-target paths. The welfare cost associated with persistent low inflation may be reduced if the CB announces to the agents its target or its own inflation forecasts, as communication helps coordinate expectations. However, the CB may lose its credibility whenever its announcements become decoupled from actual inflation.

Keywords: Inflation Targeting, Heterogeneous Expectations, Effective Lower Bound, Communication

JEL Classification: E32, E52, E70, C82

Suggested Citation

Arifovic, Jasmina and Grimaud, Alex and Salle, Isabelle and Vermandel, Gauthier, Social Learning and Monetary Policy at the Effective Lower Bound (March 23, 2023). Available at SSRN: https://ssrn.com/abstract=3728108 or http://dx.doi.org/10.2139/ssrn.3728108

Jasmina Arifovic

Simon Fraser University (SFU) - Department of Economics ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada
604-291-3508 (Phone)
604-291-5944 (Fax)

Alex Grimaud (Contact Author)

Oesterreichische Nationalbank (OeNB) ( email )

Otto-Wagner-Platz 3, PO Box 61
Vienna,
1010 Vienna, A-1011
Austria

TU Wien ( email )

Isabelle Salle

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

University of Amsterdam

Spui 21
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Gauthier Vermandel

CMAP, Ecole polytechnique, Institut Polytechnique de Paris ( email )

Route de Saclay
Palaiseau, 91128
France

LEDa, Paris-Dauphine & PSL Universities ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

Banque de France ( email )

Paris
France

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