Price-level targeting (PLT) is optimal under the fully-informed rational expectations (FIRE) benchmark but lacks … experiment - where expectations are elicited from human subjects - to collect data on expectations, inflation and output dynamics … emulate the subjects' expectations with a micro-founded heterogeneous-expectation New Keynesian (HENK) model and reproduce the …

Our study demonstrates how agents' expectations can interact dynamically with monetary and fiscal policy at the zero …-dependent target. We find that subjects' expectations significantly over-react to stochastic aggregate demand shocks and historical … sufficiently slow, participants' expectations become highly pessimistic and neither monetary nor fiscal policy are effective at …

The effectiveness of monetary policy depends, to a large extent, on market expectations of its future actions. In a … standard New Keynesian business-cycle model with rational expectations, systematic monetary policy reduces the variance of … inflation and the output gap by at least two-thirds. These stabilization benefits can be substantially smaller if expectations …

interest rates, inflation and inflation expectations. Average-inflation targeting can approximate the price path observed under … policy rule. In particular, if the central bank considers more than two lags, subjects fail to form expectations that are … target helps somewhat anchor longrun inflation expectations. …

gains to form their expectations. Using this framework, I successfully reproduce various stylized facts from the empirical …