Disinflation with Learning Agents in an Open Economy

The continuing process of disinflation, conducted by the Bank of Russia recently, is a feature of Russian macroeconomic environment, which attracts a lot of attention and bring about significant disagreements. We propose to study the problem of lowering inflation in a model of two-sector two-country open economy, which takes into account peculiarities of agents' behavior and other characteristic of macroeconomic environment in Russia. This study allows to derive the optimal disinflation policy under non-RE and bring about better understanding of the inflation process in Russia. The numerical results of the calibrated model suggest that Central Bank should rise interest rate, which results in the inflation falling into deflationary region. Learning process about a new monetary policy rule that is introduced in the model have rapid convergence of the inflation gap coefficient and policy shock variance to their steady state, while learning about output gap coefficient is slower. Moreover, agents cannot learn output gap and inflation gap coefficients in the monetary policy rule completely.