Performance of monetary policy with internal central bank forecasting

Abstract

Recent models of monetary policy have analysed the desirability of different optimal and ad hoc interest-rate rules under the restrictive assumption that forecasts of the private sector and central bank are homogeneous.In this paper, we study from a learning perspective the implications of heterogeneity across forecasts by the central bank and private agents for the performance of interest-rate rules.Key words: adaptive learning, stability, heterogeneity, monetary policy JEL classification numbers: E52, E31, D84