Good Luck or Good Policy? An expectational theory of macro volatility switches

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Show simple item record GABALLO, Gaetano 2011-08-03T08:50:28Z 2011-08-03T08:50:28Z 2011-01-01
dc.identifier.issn 1830-7728
dc.description.abstract In an otherwise unique-equilibrium model, agents are segmented into a few informational islands according to the signal they receive about others' expectations. Even if agents perfectly observe fundamentals, rational-exuberance equilibria (REX) can arise as they put weight on expectational signals to refine their forecasts. Constant-gain adaptive learning can trigger jumps between the equilibrium where only fundamentals are weighted and a REX. This determines regime switching in aggregate volatility despite unchanged monetary policy and time-invariant distribution of exogenous shocks. In this context, a thigh inflation-targeting policy can lower expectational complementarity preventing rational exuberance, although its effect is non-monotone. en
dc.format.mimetype application/pdf
dc.language.iso en en
dc.relation.ispartofseries EUI MWP en
dc.relation.ispartofseries 2011/19 en
dc.rights info:eu-repo/semantics/openAccess
dc.subject Non-fundamental volatility en
dc.subject perpetual learning en
dc.subject comovements in expectations en
dc.subject professional forecasters en
dc.subject E3 en
dc.subject E5 en
dc.subject D8 en
dc.title Good Luck or Good Policy? An expectational theory of macro volatility switches en
dc.type Working Paper en
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