In most instances, the dynamic response of monetary and other policies to shocks is infrequent and lumpy. The same holds for the microeconomic response of some of the most important economic variables, such as investment, labor demand, and prices. We show that the standard practice of estimating...

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 develop a technique for analyzing the response dynamics of economic variables to structural shocks in linear rational expectations models. Our work differs fromstandard SVARs since we allow expectations of future variables to enter structural equations. We show how to estimate the...