Some Implications of Learning for Price Stability

Survey data on expectations of a range of macroeconomic variables exhibit lowfrequency
drift. In a New Keynesian model consistent with these empirical properties,
optimal policy in general delivers a positive inflation rate in the long run. Two special
cases deliver classic outcomes under rational expectations: as the degree of lowfrequency
variation in beliefs goes to zero, the long-run inflation rate coincides with the
inflation bias under optimal discretion; for non-zero low-frequency drift in beliefs, as
households become highly patient valuing utility in any period equally, the optimal longrun
inflation rate coincides with optimal commitment - price stability is optimal.