Using sector-level survey data for the universe of Japanese firms, we establish the positive co-movement in the firm’s expectations about aggregate and sector-specific demand shocks. We show that a simple model with imperfect information on the current aggregate and sector-specific components...

Followers of law, politics and business commonly relate stories of individuals who appear to predict an expected self-performance level below what they believe likely. Candidates, attorneys and firms sometimes seem to under-predict their own capacities. Insofar as individuals typically construct...

We investigate the desirability of adopting a rule in favor of discretionary monetary policy in a model exhibiting Kydland and Prescott's dynamic inconsistency problem but no fundamental incompatibility between the policymaker's price stability and full employment objectives. We show that if...

This paper examines the ability of a policy maker to fashion equilibrium outcomes in an environment where market participants play a coordination game with heterogeneous information. We consider a simple model of regime change that embeds many applications examined in the literature. In...

We develop a DSGE model in which the policy rate signals the central bank's view about macroeconomic developments to incompletely informed price setters. The model is estimated with likelihood methods on a U.S. data set including the Survey of Professional Forecasters as a measure of price...