Ellis W. Tallman
Economic Review, Vol. 88, No. 3, 2003

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In March 2003 the Federal Reserve Bank of Atlanta hosted a conference focusing on the relationship between monetary policy and learning. The conference papers and discussions are part of an emerging literature that introduces learning—about the economy or the model used by policymakers—into dynamic macroeconomic models. In some models, monetary policymakers learn about how the economy works while in others private agents learn about the model(s) the central bank uses to formulate monetary policy.

This article outlines key issues, raised in a 1999 book by Thomas Sargent, about how to interpret monetary policy behavior and economic performance over the past thirty years using the Phillips curve framework and different assumptions about learning. To a large extent, several conference papers follow from Sargent's work. Some conference papers focus on understanding recent inflation history, attempting to detect monetary policy's role in generating the recent, more benign inflation performance. Other conference papers investigate the role of learning behavior in a variety of settings. The article outlines the implications from some of the papers.

Finally, the article describes economic literature relating to central bank transparency, its relevance for effective communication to the public about monetary policy, and its likely role in future learning models. Through the transparency discussion, the article foreshadows Lars Svensson's keynote address at the conference (reprinted here), citing it as a "suggested user's guide for monetary policymakers to improve policy effectiveness."

September 2003