Economists have tried to uncover stylized facts about people’s expectations, testing whether such expectations are rational. Tests in the early 1980s suggested that expectations were biased, and some economists took irrational expectations as a stylized fact. But, over time, the results of...

Motivated by recent developments in the bounded rationality and strategic complementarity literatures, we examine an intentionally simple and stylized aggregative economic model when the assumptions of fully rational expectations and no strategic interactions are relaxed. We show that small...

This paper examines the predictive power of shifts in monetary policy, as measured by changes in the real federal funds rate, for output, inflation, and survey expectations of these variables. The authors find that policy shifts have larger effects on actual output than on expected output,...

The subjective distribution of growth rates of aggregate consumption is characterized by pessimism if it is first-order stochastically dominated by the objective distribution. Uniform pessimism is a leftward translation of the objective distribution of the logarithm of the growth rate. The...

This paper investigates whether oil prices have a reliable and stable out-of-sample relationship with the Canadian/U.S. dollar nominal exchange rate. Despite state-of-the-art methodologies, the authors find little systematic relation between oil prices and the exchange rate at the monthly and...

A central puzzle in international finance is that real exchange rates are volatile and, in stark contradiction to efficient risk-sharing, negatively correlated with relative consumptions across countries. This paper shows that a model with incomplete markets and a low price elasticity of imports...

The authors investigate an international monetary business-cycle model in which agents face monetary policy processes that incorporate regime shifts. In any given period agents cannot directly observe the policy regime, but instead form beliefs that are updated via Bayesian learning. As a...