Introducing learning into a standard asset pricing model improves considerably its empirical performance. In a model of learning where today's stock price is determined by the expectation of tomorrow's stock price, the dynamics of expectations and actual price are such that the market has...

We compute the optimal nonlinear interest rate policy under commitment for a forward-looking stochastic model with monopolistic competition and sticky prices when nominal interest rates are bounded below by zero. Calibrating the model to the U.S. economy we find that the empirical magnitude of...

Introducing bounded rationality into a standard consumption based asset pricing model with a representative agent and time separable preferences strongly improves empirical performance. Learning causes momentum and mean reversion of returns and thereby excess volatility, persistence of...

When is it optimal for a government to default on its legal repayment obligations? We answer this question for a small open economy with domestic production risk in which contracting frictions make it optimal for the government to finance itself by issuing non-contingent debt. We show that...

We document the presence of sizable distributional effects from unexpected price level movements in the Euro Area (EA) using sectoral accounts and newly available data from the Household Finance and Consumption Survey. The EA\ as a whole is a net winner of unexpected price level increases, with...