Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/245803 
Authors: 
Year of Publication: 
2021
Series/Report no.: 
ECON WPS - Working Papers in Economic Theory and Policy No. 08/2021
Publisher: 
TU Wien, Institute of Statistics and Mathematical Methods in Economics, Research Unit in Economics, Vienna
Abstract: 
This paper investigates monetary policy in a heterogeneous agent new Keynesian (HANK) model where agents face idiosyncratic income risk and use adaptive learning in order to form their expectations. Households experience different histories and observe different idiosyncratic variables. This gives rise to idiosyncratic learning processes, which naturally implies the existence of heterogeneous expectations. In HANK models, supply shocks generate precautionary saving. The learning setup amplifies this effect and can result in long-lasting disinflationary traps. Dovish Taylor rules focused on closing the output gap dampen the learning effects. Price level targeting improves the inflation and output stabilization trade-off by better anchoring expectations.
Subjects: 
adaptive learning
precautionary saving
restricted perception equilibrium
heterogeneous expectations
heterogeneous agent
JEL: 
E25
E31
E52
E70
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.