This paper considers the implications of an important source of model misspecification for the design of monetary policy rules: the assumed manner of expectations formation. Following a considerable literature on learning, it is assumed that private agents seek to maximize their objectives...

The authors study the hypothesis that misperceptions of trend productivity growth during the onset of the productivity slowdown in the United States caused much of the great inflation of the 1970s. They use the general equilibrium, sticky price framework of Woodford (2002), augmented with...