Based on the approach advanced by Elliott et al. (Rev. Ec. Studies. 72, 1197..1125, 2005), we analyzed whether the loss function of a sample of exchange rate forecasters is asymmetric in the forecast error. Using forecasts of the euro/dollar exchange rate, we found that the shape of the loss...

Using forecasts of the Brazilian real and the Mexican peso, we analyze the shape of the loss function of exchange-rate forecasters and the rationality of their forecasts. We find a substantial degree of cross-sectional heterogeneity with respect to the shape of the loss function. While some...

The higher our aspirations, the higher the probability that we have to adjust them downwards when forming more realistic expectations later on. This paper shows that the costs induced by high aspirations are not trivial. We first develop a theoretical framework to identify the factors that...

Western governments are currently contemplating how to adapt their Pay-As-You-Go pension systems so that these remain financially sustainable, even with an aged population. To the extent that policy-makers haven't already adapted their old age social security schemes, an ageing population thus...

Previous experimental investigations have shown that expectations are not perfectly rational due to bias. Traditional adaptive models, however, in many cases do not perfectly describe the formation of expectations either. This paper makes two contributions to the experimental literature on the...

We estimate the sticky information Phillips curve model of Mankiw and Reis (2002) using survey expectations of professional forecasters from four major European economies. Our estimates imply that inflation expectations in France, Germany and the United Kingdom are updated about once a year, in...

Models with heterogeneous interacting agents explain macro phenomena through interactions at the micro level. We propose genetic algorithms as a model for individual expectations to explain aggregate market phenomena. The model explains all stylized facts observed in aggregate price fluctuations...

We study the Green and Lin (2003) model of financial intermediation with two new features: traders may face a cost of contacting the intermediary, and consumption needs may be correlated across traders. We show that each feature is capable of generating an equilibrium in which some (but not all)...

Central bank communication plays an important role in shaping market participants’ expectations. This paper studies a simple nonlinear model of monetary policy in which agents have incomplete information about the economic environment. It shows that agents’ learning and the dynamics of the...

This paper analyzes how the formation of expectations constrains monetary and fiscal policy design. Economic agents have imperfect knowledge about the economic environment and the policy regime in place. Households and firms learn about the policy regime using historical data. Regime uncertainty...