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Atlanta Fed Working Papers

Irrational Expectations and Econometric Practice Discussion of Orphanides and Williams, “Inflation Scares and Forecast-Based Monetary Policy”

Peter N. Ireland
Working Paper 2003-22
October 2003

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Athanasios Orphanides and John C. Williams’ excellent conference paper, “Inflation Scares and Forecast-Based Monetary Policy,” contributes importantly to the new and rapidly growing branch of the literature on bounded rationality and learning in macroeconomics. Their paper, like many others, derives interesting and useful theoretical results that show how the introduction of bounded rationality and learning impacts on the effects of monetary policy shocks and the characteristics of optimal monetary policy rules. This note suggests that some additional empirical work—some “irrational expectations econometrics,” if you will—might serve to make these purely theoretical results seem more relevant and convincing.

Discussant’s comments on Athanasios Orphanides and John C. Williams’ “Inflation Scares and Forecast-Based Monetary Policy” were presented at the Monetary Policy and Learning Conference sponsored by the Federal Reserve Bank of Atlanta in March 2003. The views expressed here are the author and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the author’s responsibility.

Please address questions regarding content to Peter N. Ireland, Boston College, Department of Economics, 140 Commonwealth Avenue, Chestnut Hill, Massachusetts 02467, 617-552-3687, 617-552-2308 (fax),,

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