In adaptive learning literature it has been argued that the intensity of a Central Bank’s (CB) interest rate response to expected inflation must be more than proportional. This article provides reassurance to the CB to some extent, showing that if it learns in a more sophisticated way than with adaptive learning, the policy response does not have to be as strong. Particularly, it proposes self-referenced learning for the CB to consider that its own expectations affect inflation itself. This is highly realistic because CBs dedicate resources to generating expectations for economic variables.
Basto Mercado, L. E. (2025). Expectations Stability when the Central Bank Learns from its Self-referenced Forecasts. Estudios De Economía, 52(1). Recuperado de https://estudiosdeeconomia.uchile.cl/index.php/EDE/article/view/78264
