Policy maker's inflation targeting with heterogeneous inflation expectations in economics agents

The purpose of the present study is to investigate the role of policy instruments such as interest rate and exchange rate on inflation targeting in the new Keynesian model in terms of heterogeneous economic agents' expectations (HANK). In this study, the model of rational expectations and constrained expectations based on adaptive expectations model is used to apply constraints of expectations shaping operators in economic agents to predict macroeconomic variables. The results indicate that expected inflation is a factor affecting inflation. In this case, it can be said that in order to control the inflation rate, one important policy that should be followed by the central bank is to control and manage expectations. The output gap coefficient, as expected, is negative. This rate reflects structural problems with the supply of goods. The results indicate that the major factor affecting inflation is the money growth rate. In this channel model, the effect of money growth rate on inflation is expected inflation, which is a considerable amount given the high rates of money growth in recent years. So the growth of the money supply will have a huge impact on the inflation rate.