This paper examines the implications of changing the expectations assumption that is embedded in nearly all current macroeconomic models. The paper substitutes measured or "real" expectations for rational expectations in an array of standard macroeconomic relationships, as well as in a DSGE...

For years, the problems associated with the Lucas critique have loomed over empirical macroeconomics. Since the publication of the classic Lucas (1976) critique, researchers have endeavored to specify models that capture the underlying dynamic decision-making behavior of consumers and firms who...

This paper compares different methods for estimating forward-looking output and inflation Euler equations and shows that weak identification can be an issue in conventional GMM estimation. The authors propose a GMM procedure that imposes the dynamic constraints implied by the forward-looking...

We compare different methods for estimating forwardlooking output and inflation equations and show that weak identification can be an issue in conventional GMM estimation. GMM and maximum likelihood procedures that impose the dynamic constraints implied by the forwardlooking relation on the...