This paper shows that belief‐driven economic fluctuations are a general feature of many determinate macroeconomic models. In environments with hidden state variables, forecast‐model misspecification can break the link between indeterminacy and sunspots by establishing the existence of...

This chapter provides an overview of recent models of heterogeneous expectations in macroeconomics. We begin with a description of household behavior in an environment with features common to many models in asset pricing, monetary theory, and New Keynesian macroeconomics. We demonstrate issues...

Regime-switching rational expectations models, in which the parameters of the model evolve according to a amp;#64257;nite state Markov process, have properties that differentiate them from linear models. Issues that are well understood in linear contexts, such as equilibrium determinacy and stability...