This paper reviews the recent research into employing a new version of a bounded rationality approach to macroeconomic modeling in the standard new Keynesian model. In the study the hypothesis of rational expectations is realistically replaced with the assumption of adaptive learning of economic agents about the future economic conditions as a way of modeling the formation of expectations. The paper presents the merits and advantages as well as the limits of the adaptive learning approach and argues that the application of this approach provides a convincing rationale, both in theoretical and methodological terms, for greater transparency and credibility in central bank operations. To that end, the latest monetary policy analytical framework is used aiming at maximizing economic welfare through optimal macroeconomic stability.

Keywords: adaptive learning, instrument rules, reaction functions, monetary policy evaluation


JEL: E52, D83, D84, C62

  Michał Cierkoński - Adaptive Learning and Modeling for Monetary Policy Evaluation - plik pdf; (1.3 MB)