In many countries, governments involve interest groups at early stages of political decisionmaking. The idea of this is to enhance the legitimacy of the policy decision and to curb later opposition to the implementation of the policy. We show that the way and timing of interest groups...

This paper examines optimal monetary policy under heterogeneous expectations. To this end, we develop a stochastic New Keynesian model with a cost-push shock and coexistence of one-step-ahead rational and adaptive expectations in decentralized markets. On the one side, heterogeneous expectations...

In this paper, I propose an optimal interest rate rule under heterogeneous expectations derived from a welfare criterion that is a second-order approximation of heterogeneous household utility following Di Bartolomeo et al. (2016). Additionally, I explore the agent level of the Branch and...

We use a New Keynesian model that features rational and non-rational households. Assuming that both the fraction of rational households and the expectations formation process are uncertain from the perspective of the central bank, we derive robust optimal discretionary monetary policy in a...