In an asset-pricing model, risk-averse agents need to forecast the conditional variance of a stock's return. A near-rational restricted perceptions equilibrium exists in which agents believe prices follow a random walk with a conditional variance that is self-fulfilling. When agents estimate...

This paper introduces model uncertainty into a simple Lucas-type monetary model. Inflation depends on agents' expectations and a vector of exogenous random variables. Following (Branch and Evans 2004) agents are assumed to underparameterize their forecasting models. A Misspecification...

This paper demonstrates that an asset pricing model with least-squares learning can lead to bubbles and crashes as endogenous responses to the fundamentals driving asset prices. When agents are risk-averse they need to make forecasts of the conditional variance of a stock’s return. Recursive...

This paper studies the implications for monetary policy of heterogeneous expectations in a New Keynesian model. The assumption of rational expectations is replaced with parsimonious forecasting models where agents select between predictors that are underparameterized. In a Misspecification...

This paper introduces dynamic predictor selection into a New Keynesian model with heterogeneous expectations and examines its implications for monetary policy. We extend Branch and McGough (2009) by incorporating endogenous time-varying predictor proportions along the lines of Brock and Hommes...

This paper develops an adaptive learning formulation of an extension to the Ball, Mankiw, and Reis (2005) sticky information model that incorporates endogenous inattention. We show that, following an exogenous increase in the policymaker’s preferences for price vs. output stability, the...