The rational expectations hypothesis swept through macroeconomics during the 1970's and permanently altered the landscape. It remains the prevailing paradigm in macroeconomics, and rational expectations is routinely used as the standard solution concept in both theoretical and applied...

We study how the use of judgement or “add-factors” in macroeconomic forecasting may disturb the set of equilibrium outcomes when agents learn using recursive methods. We isolate conditions under which new phenomena, which we call exuberance equilibria, can exist in standard macroeconomic...

We study regulation of the auditing profession in a model where audit quality is unobservable and enforcing regulation is costly. The optimal audit standard falls short of the first-best audit quality, and is increasing in the riskiness of firms and in the amount of funding they seek. The model...

We study a many country endogenous growth model in which decisions about innovation and new investment are influenced by growth expectations. Adaptive learning dynamics determine country-specific short run transition paths. Countries differ in basic structural parameters and may impose tariffs...