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Working Paper

Adaptive Learning, Endogenous Inattention, and Changes in Monetary Policy

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This paper develops an adaptive learning formulation of an extension to the Ball, Mankiw, and Reis (2005) sticky information model that incorporates endogenous inattention. We show that, following an exogenous increase in the policymaker's preferences for price vs. output stability, the learning process can converge to a new equilibrium in which both output and price volatility are lower.
08.01.2006ISSN 2573-7953 WP 06-10DOI 10.26509/frbc-wp-200610
Keywords expectations, optimal monetary policy, bounded rationality, economic stability, adaptive learning
JEL Classification Codes E52, E31, D83, D84

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Branch, William, John B. Carlson, George Evans, and Bruce McGough. 2006. “Adaptive Learning, Endogenous Inattention, and Changes in Monetary Policy.” Federal Reserve Bank of Cleveland, Working Paper No. 06-10. https://doi.org/10.26509/frbc-wp-200610