We study the possibility of (almost) self-fulfilling waves of pessimism and selfreinforcing liquidity traps in a New Keynesian model with heterogeneous expectations. We explicitly focus on the "anchoring" of expectations that is modeled as the range of deviations from the central bank targets...

Behavioral and experimental literature on financial instability focuses on either subjective price expectations (Learning-to-Forecast experiments) or individual trading (Learning-to-Optimize experiments). Bao et al. (2017) have shown that subjects have problems with both tasks. In this paper, I...

We analyze fiscal consolidations using a New Keynesian model where agents have heterogeneous expectations and are uncertain about the composition of consolidations. We look at spending-based and tax-based consolidations and analyze their effects separately. We find that the effects of...