We study the connections between determinacy of rational expectations equilibrium, and expectational stability or learnability of that equilibrium, in a relatively general New Keynesian model. Adoption of policies that induce both determinacy and learnability of equilibrium has been considered...

What inflation rate should central banks target? Following the work of Bils and Klenow (2004), who were the first to document the large amount of heterogeneity in the frequency of price changes across different categories of goods and services in the United States, a growing literature has...

Standard RBC models predict forecastable movements in output, consumption and hours that differ from those obtained from a VAR estimated on US data. The paper investigates whether introducing bounded rationality and learning generates business cycles properties which are empirically plausible....

We study the term structure of disagreement of professional forecasters for key macroeconomic variables. We document a novel set of facts: (i) forecasters disagree at all horizons including the very long run; (ii) the shape of the term structure of disagreement differs markedly across variables:...

We calibrate and simulate the model's response to `demand' shocks such as shifts in the marginal efficiency of investment, government spending shocks and news shocks. We show that investment-specific shocks can generate business cycle fluctuations that are broadly consistent with aggregate data.

expectations? We find that the answer to both questions is negative: Standard medium scale DSGE models have difficulties explaining the evolution of inflation expectations, and that the fit is even worse when we introduce imperfect information.

The modern theory of monetary policy emphasizes the management of expectations. In New Keynesian models frequently used for policy evaluation it is well understood that it is not so much the current interest rate, but instead anticipated movements in future interest rates that are central to...

Finally, following Smith (1993), we estimate the model using indirect inference methods. The empirical implications of the model both under learning and rational expectations are explored. Furthermore, we test the relative importance of various model frictions and learning dynamics in capturing...

This paper identifies a channel by which changes in the size and composition of government debt might generate macroeconomic instability in a standard New Keynesian model. The mechanism depends on failures of Ricardian equivalence because of learning dynamics. Under rational expectations, the...