The learnability criterion and monetary policy

Abstract

Expectations of the future play a large role in macroeconomics. The rational expectations assumption, which is commonly used in the literature, provides an important benchmark, but may be too strong for some applications. This paper reviews some recent research that has emphasized methods for analyzing models of learning, in which expectations are not initially rational but which may become rational eventually provided certain conditions are met. Many of the applications are in the context of popular models of monetary policy. The goal of the paper is to provide a largely non-technical survey of some, but not all, of this work and to point out connections to some related research. © 2006, The Federal Reserve Bank of St. Louis.