The output gap plays a crucial role in thinking of many inflation targeting central banks yet, the real time estimates of the output gap undergo substantial revisions as more data become available. In this paper, we use the state space framework to augment the simple Hodrick-Prescott filter with...

The usual index of leading indicators has constant weights on its components and is therefore implicitly premised on the assumption that the dynamical properties of the economy remain the same over time and across phases of the business cycle. We explore the possibility that the business cycle...

It is now widely understood how to obtain first-order accurate approximations to the solution to a dynamic, stochastic general equilibrium model (DSGE model). Such solutions are fairly easy to construct and useful for a wide variety of purposes. They are likely to be accurate enough to be a...

This paper examines the determinants of inflation forecast uncertainty using a panel of density forecasts from the Survey of Professional Forecasters (SPF). We show that previous studies based on aggregate data are biased due to heterogeneity of individual forecasts. Instead, we estimate a...

We present an algorithm and software routines for computing nth-order approximate solutions to dynamic, discrete-time rational expectations models around a nonstochastic steady state. We apply these routines to investigate the optimal monetary policy with commitment (and from a ``timeless...

In this paper, we consider a dynamic New Keynesian model of the small open economy in the light of bounded rationality. This entails private agents and the central bank updating their beliefs about the laws of motion of inflation, the output gap and real exchange rate when forming their optimal...

The aim of the present paper is to analyze the pass-through from exchange rate to inflation in Brazil from 1980 to 2002. Initially, we developed a model of a profit-maximizing firm based on the pricing-to-market approach presented by FEENSTRA and KENDAL (1997). In order to adapt the model to the...

We examine the impact of public information in an economy where agents also have diverse private information. Our work builds on seminal contributions by Townsend (1983) and Phelps (1983), and more recently Woodford (2002), which emphasized the importance of higher-order beliefs – that is,...