Monetary policy, judgment and near-rational exuberance

Description

"We study how the use of judgment or "add-factors" in macroeconomic forecasting may disturb the set of equilibrium outcomes when agents learn using recursive methods. We examine the possibility of a new phenomenon, which we call exuberance equilibria, in the New Keynesian monetary policy framework. Inclusion of judgment in forecasts can lead to self-fulfilling fluctuations in a subset of the determinacy region. We study how policymakers can minimize the risk of exuberance equilibria"--Federal Reserve Bank of St. Louis web site.

Subjects

Series Statement

• Working paper -- 2007-008A
• Working paper (Federal Reserve Bank of St. Louis : Online) -- 2007-008A.

Links

• http://research.stlouisfed.org/wp/more/2007-008/
• URL