Theories of learning and economic policy

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    Abstract

    The benchmark rational expectations (RE) assumption both assumes an unrealistic degree of rationality for economic agents and fails to address how agents would come to coordinate on an equilibrium. This essay reviews how theories of learning, and more specifically adaptive learning, address these issues and can lead to policy conclusions distinct from those obtained under RE. Applications discussed include monetary policy in New Keynesian models, the neo-Fisherian policy view, inflation targets, hyperinflation models, and macroeconomic policy to avoid stagnation at the zero lower bound.
    Original languageEnglish
    Pages (from-to)583-608
    Number of pages26
    JournalRevue d'Economie Politique
    Volume131
    Issue number3
    DOIs
    Publication statusPublished - 9 Jul 2021

    Keywords

    • Bounded rationality
    • Expectational coordination
    • Fiscal policy
    • Learning
    • Monetary policy
    • Stability

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