Monetary policy, judgment, and near-rational exuberance

James Bullard, George W Evans, Seppo Honkapohja

    Research output: Contribution to journalArticlepeer-review

    16 Citations (Scopus)

    Abstract

    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.
    Original languageEnglish
    Pages (from-to)1163-1177
    Number of pages15
    JournalAmerican Economic Review
    Volume98
    Issue number3
    DOIs
    Publication statusPublished - Jun 2008

    Keywords

    • CONSISTENT EXPECTATIONS
    • RULES

    Fingerprint

    Dive into the research topics of 'Monetary policy, judgment, and near-rational exuberance'. Together they form a unique fingerprint.

    Cite this