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Learning and the Central Bank

It is well known that sunspot equilibria may arise under an interest rate operating procedure in which the central bank varies the nominal rate with movements in future inflation (a forwardlooking Taylor rule). This paper demonstrates that these sunspot equilibria may be learnable in the sense of E-stability.

JEL Codes: D51, E42, E52

Key Words: general equilibrium, money and interest rates, monetary policy

Suggested citation: Carlstrom, Charles T. and Timothy S. Fuerst, 2001. "Learning and the Central Bank," Federal Reserve Bank of Cleveland, Working Paper, no. 01-17.

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