Policy implications are derived for an inflation-targeting central bank, whose credibility is endogenous and depends on its past ability to achieve its targets. This is done in a New Keynesian framework with heterogeneous and boundedly rational expectations. We find that the region of allowed...

We study the possibility of (almost) self-fulfilling waves of pessimism and selfreinforcing liquidity traps in a New Keynesian model with heterogeneous expectations. We explicitly focus on the "anchoring" of expectations that is modeled as the range of deviations from the central bank targets...

We analyze fiscal consolidations using a New Keynesian model where agents have heterogeneous expectations and are uncertain about the composition of consolidations. We look at spending-based and tax-based consolidations and analyze their effects separately. We find that the effects of...

We conduct a laboratory experiment in a fully-fledged macroeconomic model where participants receive information about future government spending shocks and are tasked with repeatedly forecasting output over a given horizon. By eliciting several-period-head predictions, we investigate forecast...

We conduct a laboratory experiment in a fully-fledged macroeconomic model where participants receive information about future government spending shocks and are tasked with repeatedly forecasting output over a given horizon. By eliciting several-period-head predictions, we investigate forecast...

Policy implications are derived for an inflation-targeting central bank, whose credibility is endogenous and depends on its past ability to achieve its targets. This is done in a New Keynesian framework with heterogeneous and boundedly rational expectations. We find that the region of allowed...