Transcripts of the monetary policymaking body of the Federal Reserve from 2002–2008.

That’s a difficult question because it depends on how people learn, a mechanism that is not formally in the model itself. If people have completed their learning and know your rule and you do something quite different from your rule, does that cause them to reinterpret what you’re doing and conclude that you must not be using the rule they thought they knew? That’s when confusion results, and they can’t predict the funds rate ninety days ahead, for example. There is not very much literature on this, mostly because there’s no agreed-upon theory about how people learn. What I think is true, and this is just a feeling on my part, is that if the events the Fed is responding to are extraordinary—outside the normal random shocks that occur from period to period—the private sector is quite happy to give you the benefit of the doubt.

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