Bank of Finland on modelling rational expectations
A Bank of Finland paper published in April examines how expectations are formed and whether there exists rational foundations for macroeconomics and finance models.
George Evans and Seppo Honkapohja, the paper's authors, illustrate the adaptive learning approach to expectation formation by applying Taylor-type rules for monetary policy within a New Keynesian model.
Evans and Honkapohja stress the importance in models with private agent learning of using monetary policies that do not simply react
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