Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/211963 
Authors: 
Year of Publication: 
2003
Series/Report no.: 
Bank of Finland Discussion Papers No. 30/2003
Publisher: 
Bank of Finland, Helsinki
Abstract: 
This paper demonstrates that the adaptive learning approach to modelling private sector expectations can be used as an equilibriumselection mechanism in a natural-rate monetary model with unemployment persistence.In particular, it is shown that only one of the two rational expectations equilibria is stable under least-squares learning, and that it is always the low-inflation equilibrium with intuitive comparative statics properties that is the learnable equilibrium.Hence, this paper provides a basic theoretical justification for focusing on the lowinflation equilibrium.Earlier contributions, in which the high-inflation equilibrium was ignored, mainly because of its unpleasant characteristics, are not theoretically satisfactory.
Subjects: 
adaptive learning
monetary policy
multiple equilibria
persistence
JEL: 
C62
D83
D84
E52
Persistent Identifier of the first edition: 
ISBN: 
952-462-098-7
Document Type: 
Working Paper

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