Inflation determinationwithTaylorrules:Isnew-Keynesiananalysis critically flawed?

Cochrane(2007) has stronglyquestionedthebasiceconomiclogicofcurrentmonetary policy analysis,arguingthatNewKeynesian(NK)modelsimplyrationalexpectations paths withexplosiveinflationthatdonotimplyexplosionsinrealvariablesrelevantfor transversalityconditions.Consequently,theusuallogicdoesnotruleoutsolutionswith explosiveinflation.Thatresultdoesnot,however,justifynegativeconclusionsaboutNK analysis,foradifferentcriterionislogicallysatisfactory.Itisthat,tobeplausible,aRE solution mustsatisfythepropertyofleast-squareslearnability.Adoptionofthis criterionservestojustifyinprinciplethebulkofcurrentmainstreamanalysis