Nominal Interest Rate Rules under Heterogeneous Beliefs

Name: Nominal Interest Rate Rules under Heterogeneous Beliefs
Brand: Vita e Pensiero
Price: 6.00 EUR
Availability: OnlineOnly

digital

Article

Magazine

RIVISTA INTERNAZIONALE DI SCIENZE SOCIALI

Issue

RIVISTA INTERNAZIONALE DI SCIENZE SOCIALI - 2007 - 3

Title

Nominal Interest Rate Rules under Heterogeneous Beliefs

Author

Hehui Jin

Publisher

Vita e Pensiero

Format

Article |

Pdf

Pages

Online from

03-2007

Issn

0035-676X (print) | 1827-7918 (digital)

€ 6.00

Ebook format Pdf readable on these devices:

Computer
with Software:
- Adobe PDF Reader
Android
iPhone/Ipad
with App:
- Adobe PDF Reader
E-Book Reader
Ibs Tolino
Kobo

Description

This paper presents simple models with competitive markets, fully flexible prices and fully observable macro-economic variables. Agents hold heterogeneous beliefs because the exogenous shocks are stable but non-stationary and the true law of motion is unknown to agents. We show that the diversity of beliefs enables monetary policy to have real effects and the fluctuations in beliefs cause excess volatilities in real economy. By log-linearization we derive a version of the aggregate supply curve which relates aggregate employment to the discrepancies between the market forecast of inflation rate and the stationary forecast of it. The computational results demonstrate that monetary policy rules can dramatically reduce consumption volatility and there is a tradeoff between stability of consumption and inflation. The results are thus comparable with Kurz - Jin - Motolese (2003).