I present a New Keynesian model in which the central bank’s anti-inflationary preferences change over time. Agents do not observe the current monetary regime, but rationally learn about it using Bayes theorem. The model reproduces the contractionary effects of monetary policy uncertainty shocks recently documented in the empirical literature. In addition, the model shows that learning reduces the effects of monetary policy on the economy by softening the link between fundamentals and equilibrium prices and allocations.
Monetary policy, Uncertainty, Bayesian learning.;
- C11: Bayesian Analysis: General
- D83: Search • Learning • Information and Knowledge • Communication • Belief
- E52: Monetary Policy