This paper studies the macroeconomic effects of central bank forward guidance when central bank credibility is endogenous. In particular, we take a stylized New Keynesian model with an occasionally binding zero lower bound constraint on nominal interest rates and heterogeneous and boundedly...

The recent macroeconomic literature stresses the importance of managing heterogeneous expectations in the formulation of monetary policy. We use a stylized macro model of Howitt (1992) to investigate inflation dynamics under alternative interest rate rules when agents have heterogeneous...

Expectations play a crucial role in modern macroeconomic models. We replace the common assumption of rational expectations in a New Keynesian framework by the assumption that expectations are formed according to a heuristics switching model that has performed well in earlier work. We show how...