Social Learning and Monetary Policy Rules

37 Pages Posted: 7 Mar 2007

See all articles by Jasmina Arifovic

Jasmina Arifovic

Simon Fraser University (SFU) - Department of Economics

James Bullard

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Olena Kostyshyna

Simon Fraser University (SFU)

Multiple version iconThere are 2 versions of this paper

Date Written: March 2007

Abstract

We analyze the effects of social learning in a widely-studied monetary policy context. Social learning might be viewed as more descriptive of actual learning behavior in complex market economies. Ideas about how best to forecast the economy's state vector are initially heterogeneous. Agents can copy better forecasting techniques and discard those techniques which are less successful. We seek to understand whether the economy will converge to a rational expectations equilibrium under this more realistic learning dynamic. A key result from the literature in the version of the model we study is that the Taylor Principle governs both the uniqueness and the expectational stability of the rational expectations equilibrium when all agents learn homogeneously using recursive algorithms. We find that the Taylor Principle is not necessary for convergence in a social learning context. We also contribute to the use of genetic algorithm learning in stochastic environments.

Keywords: New Keynesian macroeconomics, genetic algorithm learning

JEL Classification: E52, E58, D83

Suggested Citation

Arifovic, Jasmina and Bullard, James and Kostyshyna, Olena, Social Learning and Monetary Policy Rules (March 2007). Available at SSRN: https://ssrn.com/abstract=967456 or http://dx.doi.org/10.2139/ssrn.967456

Jasmina Arifovic (Contact Author)

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)

James Bullard

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

P.O. Box 442
411 Locust Street
St. Louis, MO 63166
United States
314-444-8576 (Phone)

Olena Kostyshyna

Simon Fraser University (SFU) ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

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