Survey data on inflation expectations show that: (i) private sector forecasts and central bank forecasts are not fully aligned and (ii) private sector forecasters disagree about inflation expectations. To reconcile these two facts we introduce dispersed information in a New Keynesian model,...

Occasionally binding constraints (OBCs) like the zero lower bound (ZLB) can lead to multiple equilibria, and so to belief-driven recessions. To aid in finding policies that avoid this, we derive existence and uniqueness conditions for otherwise linear models with OBCs. Our main result gives...

At the zero lower bound (ZLB), expectations about the future path of monetary or fiscal policy are crucial. We model expectations formation under level-k thinking, a form of bounded rationality introduced by García-Schmidt and Woodford (2019) and Farhi and Werning (2017), consistent with...

Central banks wish to avoid self-fulfilling fluctuations. Monetary rules with a unit response to real rates achieve this under the weakest possible assumptions about the behaviour of households and firms. They are robust to household heterogeneity, hand-to-mouth consumers, non-rational...

According to the two-country full information New Keynesian model with flexible exchange rates, the real exchange rate appreciates in response to an asymmetric negative demand shock at the zero lower bound (ZLB) and exacerbates the adverse macroeconomic effects. This finding requires inflation...

We document that expansionary monetary policy shocks are less effective at stimulating output and investment in periods of high volatility compared to periods of low volatility, using a regime-switching vector autoregression. The lower effectiveness of monetary policy can be linked to weaker...

We assess the effects of financial shocks on inflation, and to what extent financial shocks can account for the "missing disinflation" during the Great Recession. We apply a vector autoregressive model to US data and identify financial shocks through sign restrictions. Our main finding is that...