Monetary Policy during a Transition to Rational Expectations

  title={Monetary Policy during a Transition to Rational Expectations},
  author={John Bernard Taylor},
In standard macroeconomic models incorporating the natural rate hypothesis and rational expectations, monetary policy has no effect on real variables. But the rational expectations assumption that economic agents have learned from their mistaken predictions of the past ignores the transition period during which new information is combined with old information in the formation of new beliefs. The purpose of this paper is to examine the possible effects of monetary policy during this transition… CONTINUE READING

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