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RATIONAL VS. LONG-RUN FORECASTERS: OPTIMAL MONETARY POLICY AND THE ROLE OF INEQUALITY

Published online by Cambridge University Press:  10 August 2017

Elton Beqiraj ,
Giovanni Di Bartolomeo  and
Carolina Serpieri
Elton Beqiraj
Affiliation:
Sapienza University of Rome
Giovanni Di Bartolomeo*
Affiliation:
Sapienza University of Rome
Carolina Serpieri
Affiliation:
Sapienza University of Rome
*
Address correspondence to: Giovanni Di Bartolomeo, Dipartimento di Economia e Diritto, Sapienza Università di Roma, via del Castro Laurenziano 9, 00161, Rome, Italy; e-mail: [email protected].
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Abstract

This paper builds a stylized simple sticky-price New Keynesian model where agents' beliefs are not homogeneous. We assume that agents choose optimal plans while considering forecasts of macroeconomic conditions over an infinite horizon. A fraction of them (boundedly rational agents) use heuristics to forecast macroeconomic variables over an infinite horizon. In our framework, we study optimal policies consistent with a second-order approximation of the policy objective from the consumers' utility function, assuming that the steady state is not distorted.

Keywords

Monetary PolicyBounded RationalityHeterogeneous Expectations
Type
Articles
Information
Macroeconomic Dynamics , Volume 23 , Special Issue S1: Special Issue in Honor of Clifford Wymer on Developments in Macroeconomics , September 2019 , pp. 9 - 24
Copyright
Copyright © Cambridge University Press 2017 

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Footnotes

The authors are grateful to Marco Di Pietro, Salvatore Nisticò, Bianca Giannini, Willi Semmler, Patrizio Tirelli for useful comments on earlier drafts. They have benefited from comments on the MTP workshop (Rome). The authors also acknowledge financial support by Sapienza University of Rome.

References

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