We ask the question: Does it matter whether expections on monetary policy are heterogeneous across agents in the economy? We tackle this issue with the aid of a dynamic general equilibrium model with nominal rigidities. The most important features of the model include consumption/saving...

I introduce Expectational Business Cycles where aggregate activity fluctuates due to learning, heterogeneous updating rules and random changes in the social norm predictor. Agents use one of two updating rules to learn the equilibrium values while heterogeneity is dictated via an evolutionary...

To develop forecasting procedures with a forward-looking dynamic general equilibrium model, we built a small New-Keynesian model and calibrated it to euro area data. It was essential in this context that we allowed for long-run growth in GDP. We brought additional asset price equations based on...

This paper derives the cointegration spaces that are implied by linear rational expectations models when data are I(1). The cointegration implications are easy to calculate and can be readily applied to test if the models are consistent with the long-run properties of the data. However, the...

Using a standard model as a basis, we analyse the rational expectations macroeconomic equilibrium for an open economy with flexible exchange rates, in which expectations are affected by a perceived possibility of discrete shifts in monetary policy. These discrete shifts are modelled as possible...

Despite sound theoretical foundations a drawback of the New Keynesian model is its inability to generate adequate persistence in the variables it seeks to explain. A common solution is to modify the model to include lagged variables. However, this is unsatisfactory as many such modifications...

In this paper we incorporate the term structure of interest rates into a standard inflation forecast targeting framework. Learning about the transmission process of monetary policy is introduced by having heterogeneous agents – ie central bank and private agents – who have different...

In this paper we analyse disinflation policy in two environments. In the first, the central bank has perfect knowledge, in the sense that it understands and observes the process by which private sector inflation expectations are generated; in the second, the central bank has to learn the private...