Home > Working Papers

Working Paper 2007-007A

Search | View by Year | View by Category | View by Author

"Social Learning and Monetary Policy Rules"
by Jasmina Arifovic, James B. Bullard, and Olena Kostyshyna

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.

Full Text - Acrobat PDF (333k)

Notify Me of Updates for:
Category > Applied Microeconomics
Category > Banking
Category > Monetary Policy/Macroeconomics
Author > James B. Bullard