Skip to main content

Research Repository

Advanced Search

Learning, heterogeneity, and complexity in the New Keynesian model

Calvert Jump, Robert; Hommes, Cars; Levine, Paul

Authors

Cars Hommes

Paul Levine p.levine@surrey.ac.uk.



Abstract

We present a New Keynesian model in which a fraction n of agents are fully rational, and a fraction 1 − n of agents are bounded rational. After deriving a simple reduced form, we demonstrate that the Taylor condition is sufficient for determinacy and stability , both when the proportion of fully rational agents is held fixed, and when it is allowed to vary according to reinforcement learning. However, this result relies on the absence of persistence in the monetary policy rule, and we demonstrate that the Taylor condition is not sufficient for determinacy and stability in the presence of interest rate smoothing. For monetary policy rules that imply indeterminacy, we demonstrate the existence of limit cycles via Hopf bifurcation, and explore a rational route to randomness numerically. Our results support the broader literature on behavioural New Keynesian models, in which the Taylor condition is known to be a useful guide to monetary policy, despite not always being sufficient for determinacy and/or stability.

Citation

Levine, P., Calvert Jump, R., & Hommes, C. (2019). Learning, heterogeneity, and complexity in the New Keynesian model. Journal of Economic Behavior and Organization, 166, 446-470. https://doi.org/10.1016/j.jebo.2019.07.014

Journal Article Type Article
Acceptance Date Jul 23, 2019
Online Publication Date Jul 31, 2019
Publication Date Oct 1, 2019
Deposit Date Aug 1, 2019
Publicly Available Date Feb 1, 2021
Journal Journal of Economic Behavior and Organization
Print ISSN 0167-2681
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 166
Pages 446-470
DOI https://doi.org/10.1016/j.jebo.2019.07.014
Keywords Behavioural New Keynesian model; anticipated utility; learning; heterogeneous expectations
Public URL https://uwe-repository.worktribe.com/output/1835372
Publisher URL https://www.sciencedirect.com/science/article/pii/S0167268119302343

Files

This file is under embargo until Feb 1, 2021 due to copyright reasons.

Contact Rob.Calvertjump@uwe.ac.uk to request a copy for personal use.






You might also like



Downloadable Citations