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Learning and Signals under Discretionary Monetary Policy

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  • Stefano Marzioni

Abstract

type="main" xml:lang="en"> This paper aims at assessing the relevance of communicating central bank's forecasts to the private sector under discretionary monetary policy. In a New Keynesian environment, the central bank and the private sector have different information sets. The private sector uses the central bank's expectations as a signal in order to update its priors, which are constituted by standard adaptive learning expectations. E-stability is positively affected by a high correlation between actual inflation and the signal about inflation. Numerical simulations show that the presence of signals is beneficial both in the long and in the short run.

Suggested Citation

  • Stefano Marzioni, 2014. "Learning and Signals under Discretionary Monetary Policy," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 43(3), pages 211-231, November.
    • Handle: RePEc:bla:ecnote:v:43:y:2014:i:3:p:211-231
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