This paper addresses the output-price volatility puzzle by studying the interaction of optimal monetary policy and agents' beliefs. We assume that agents choose their information acquisition rate by minimizing a loss function that depends on expected forecast errors and information costs....

This study provides new evidence about inflation expectations formation in a highly volatile environment, in which inflation dropped dramatically from three-digits annual rate to less than 3%. Our findings, based on an Israeli survey of firms' expectations, support information rigidity theories,...

In this paper we examine the optimal level of central bank activism in a standard model of monetary policy with uncertainty, learning and strategic interactions. We calibrate the model using G7 data and find that the presence of strategic interactions between the central bank and private agents...

What can explain the persistent fluctuations observed in non-fixed exchange rates? We use a version of the Kareken-Wallace two-country overlapping generations model to explain this empirical phenomenon. The agents use an adaptive learning rule to forecast expected prices in both countries...

In assessing drivers of commodity prices and volatility at this stage of the current super-cycle in commodities (year 12 of a projected 25), it is vital to understand that production cost is a fundamental. Moreover, marginal production costs are among the most powerful drivers of commodity...

Inflation expectations play a key role in determining future economic outcomes. The associated uncertainty provides a direct gauge of how well-anchored the inflation expectations are. We construct a model-based measure of inflation expectations uncertainty by augmenting a standard unobserved...