Adaptive learning, endogenous inattention, and changes in monetary policy

Branch, William A.; Carlson, John B.; Evans, George W.; McGough, Bruce

doi:10.26509/frbc-wp-200610

Working Paper

Adaptive learning, endogenous inattention, and changes in monetary policy

Abstract: 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.

Keywords: Monetary policy; Information theory;

https://doi.org/10.26509/frbc-wp-200610