The New Keynesian Model with Imperfect Information and Learning

Abstract

The standard version of the new Keynesian model has important, well known, empirical limitations, in particular with regard to inflation and interest rate dynamics following a monetary shock.We demonstrate how the introduction of a modest amount of imperfect information and gradual learning suffices to fix these flaws.The modified model generates inflation persistence, realistic inflation and output dynamics and a liquidity effect.Moreover, the overall fitness of the model -according to standard moments criteria-is also better for imperfect information version relative to the standard version.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 32 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.