Learning, monetary policy and asset prices

مرکز و کتابخانه مطالعات اسلامی به زبان های اروپایی

منو

" Learning, monetary policy and asset prices "
Locarno, Alberto

Document Type	:	Latin Dissertation
Record Number	:	1098724
Doc. No	:	TLets550757
Main Entry	:	Locarno, Alberto
Title & Author	:	Learning, monetary policy and asset prices\ Locarno, Alberto
College	:	London School of Economics and Political Science (LSE)
Date	:	2012
student score	:	2012
Degree	:	Ph.D.
Abstract	:	The dissertation examines several policy-related implications of relaxing the assumption that economic agents are guided by rational expectations. A ﬁrst, introductory chapter presents the main technical issues related to adaptive learning. The second chapter studies the implications for monetary policy of positing that both the private sector and the central bank form their expectations through adaptive learning and that the central bank has private information on shocks to the economy but cannot credibly commit. The main ﬁnding of this chapter is that when agents learn adaptively a bias against activist policy arises. The following chapter focuses on large, non-linear models, where no unambiguous linear approximation eligible as perceived law of motion exists. Accordingly, there are heterogeneous expectations and the system converges to a misspeciﬁcation equilibrium, aﬀected by the communication strategies of the central bank. The main results are: (1) the heterogeneity of expectations persists even when a large number of observations are available; (2) the monetary policymaker has no incentive to be an inﬂation hawk; (3) partial transparency enhances welfare somewhat but full transparency does not. The ﬁnal chapter adopts a model in which agents are fully informed and use Bayesian techniques to estimate the hidden states of the economy. The monetary policy stance is unobservable and state-independent, generating uncertainty among agents, who try to gauge it from inﬂation: a change in consumer prices that conﬁrms beliefs reduces stock risk premia, while a change that contradicts beliefs drives the risk premia upward. This may generate a negative correlation between returns and inﬂation that explains the Fisher puzzle. The model is tested on US data. The econometric evidence suggests: (1) that a mimickingportfolio proxying for monetary policy uncertainty is a risk factor priced by ﬁnancial markets; and (2) that conditioning on monetary uncertainty and fundamentals eliminates the Fisher puzzle.
Subject	:	HB Economic Theory
Added Entry	:	London School of Economics and Political Science (LSE)