Estimating potential output and the output gap - the difference between actual output and its potential - is important for the proper conduct of monetary policy. However, the measurement and interpretation of potential output, and hence the output gap, is fraught with uncertainty, since it is...

Standard sticky information pricing models successfully capture the sluggish movement of aggregate prices in response to monetary policy shocks but fail at matching the magnitude and frequency of price changes at the micro level. This paper shows that in a setting where firms choose when to...

We introduce bounded rationality, along the lines of Gabaix (2020), in a canonical New Keynesian model calibrated to match Canadian macroeconomic data since Canada's adoption of inflation targeting. We use the model to provide a quantitative assessment of the macroeconomic impact of flexible...

We present a model in which temporary shocks can permanently scar the economy's productive capacity. Unemployed workers lose skill and are expensive to retrain, generating multiple steady state unemployment rates. Large temporary shocks push the economy into a liquidity trap, generating...

This paper documents five stylised facts relating to price adjustment in the euro area, using various micro price datasets collected in a period with relatively low and stable inflation. First, price changes are infrequent in the core sectors. On average, 12% of consumer prices change each...

We develop an agent-based model for the euro area that fulfils widely recommended requirements for nextgeneration macroeconomic models by i) incorporating financial frictions, ii) relaxing the requirement of rational expectations, and iii) including heterogeneous agents. Using macroeconomic and...

The rise in inflation in 2021-22 sparked a growing literature and debate over the causes of the surge as well as the near- and medium-term path for inflation. This review offers three key messages. First, the exceptional nature of shocks resulting from the COVID-19 pandemic and geopolitical...

We explain how the Bank of Canada's policy models capture the trade-off between output and inflation in Canada. We start by briefly revisiting the determinants of the New Keynesian Phillips curve. Next, we provide an overview of the Phillips curves that are currently embedded in the two main...

We analyze money financing of fiscal transfers (helicopter money) in two simple New Keynesian models: a "textbook" model in which all money is non-interest-bearing (e.g., all money is currency), and a more realistic model with interest-bearing reserves. In the textbook model with only...

This paper surveys work on dynamic heterogeneous agent models (HAMs) in economics and finance. Emphasis is given to simple models that, at least to some extent, are tractable by analytic methods in combination with computational tools. Most of these models are behavioral models with boundedly...