Under general conditions, linear decision rules of agents with rational expectations are equivalent to restricted error corrections. However, empirical rejections of rational expectation restrictions are the rule, rather than the exception, in macroeconomics. Rejections often are conditioned on...

The term structure of interest rates is the primary transmission channel of monetary policy. Under the expectations hypothesis, anticipated settings of the short-term interest rate controlled by the central bank are the main determinants of nominal bond rates. Historical experience suggests that...

Asymmetries in price adjustment can reconcile contrasts between rapid price movements in inflationary episodes, consistent with classical theories of flexible pricing, and sluggish price responses in contractions, consistent with Keynesian theories of sticky price adjustments. Nonparametric...