This paper develops a theory of expectations-driven business cycles based on learning. Agents have incomplete knowledge … consumption and leisure. Output volatility is comparable with a rational expectations analysis with a standard deviation of … technology shock that is 20 percent smaller, and has substantially more volatility in investment and hours. Persistence in these …

decision theory to characterize when learning or discriminating among competing probability models is challenging. I also use … choice theory under uncertainty to explore the ramifications of model uncertainty and learning in environments in which …

explored that evidence of excess volatility need not imply the existence of unexploited profit opportunities under the rational …

-decreasing volatility in output and employment. We refer to the latter type of equilibria as expectation traps. In effect, our paper …

volatility. This paper develops a simple model that can exhibit self-fulfilling fluctuations in the expected path for … unemployment. The novel feature is that the scope for sunspot-driven volatility depends on the level of household wealth. When …

We study the impact of model disagreement on the dynamics of asset prices, return volatility, and trade in the market … disagree about the length of the business cycle. We show that model disagreement amplifies return volatility and trading volume …, we find that while the absolute level of return volatility is driven by long-run risk, the variation and persistence of …

, return volatility, and trading volume in the mortgage-backed security market. We find that increased disagreement is … associated with higher expected returns, higher return volatility, and larger trading volume. These results imply that there is a … positive risk premium for disagreement in asset prices. We also show that volatility in and of itself does not lead to higher …