Under reduced-form learning, agents are endowed with an aggregate model, and rational expectations are then replaced with subjective expectations. This paper demonstrates that the reduced-form learning approach may be arbitrary in that a particular representation of aggregate dynamics has...

Myopic consumers underestimate the likelihood with which they will require follow-on services for products they purchase. Firms have an incentive to exploit this behavioral bias by skewing their price structure toward high add-on charges. Inadvertently, this skewed price structure provides...

We show that a non-Bayesian learning procedure leads to very permissive implementation results concerning the efficient allocation of resources in a dynamic environment where impatient, privately informed agents arrive over time, and where the designer gradually learns about the distribution of...

“Overbidding” with respect to risk-neutral Nash predictions in first-price auction experiments has been consistently reported in the literature. One possible explanation for overbidding is that participants in these experiments do not have a clear perception of probabilities, which causes...

We study interest rate rules responding to stock prices in a sticky-price sticky-wage New-Keynesian framework subject to consumption externalities. For given wage rigidity, such rules are beneficial to equilibrium determinacy if households’ preferences feature sufficiently strong...

This study shows that the private sector accurately predicts short-term interest rate targets set by the Brazilian monetary authorities. With increased transparency under inflation targeting, such evidence suggests that the public perceives the central bank as credible.

In this note, we quantify the deterioration of achievable stabilization outcomes when monetary policy operates under imperfect credibility and weak anchoring of long-term expectations. Within a medium-scale Dynamic Stochastic General Equilibrium (DSGE) model, we introduce, through a simple...

Ellison and Pearlman (2011) show that determinacy implies e-stability under both full and lagged information if (1) subjective expectations are consistent with a structural model and unbiased, and (2) a learning process is given by the saddlepath relationship. This study clarifies that their...

In the presence of distortionary taxation, the destruction of wealth–either by an act of government or an act of God–can be welfare improving, because it increases the supply of labor and therefore (holding government spending constant) allows distortionary taxes to be lowered. We show that...

This paper contains a proof that under one testable condition a measure of economic mobility formed by the ratio of permanent to total variance employing the methods of Gottschalk and Moffitt (1994) is equivalent to the Shorrocks R constructed with a Theil General Entropy Index.