Previous work with survey data on inflationary expectations casts doubt on the Rational Expectations Hypothesis. In this paper, we develop a model of expectation formation where agents form their forecasts of inflation by selecting a predictor function from a set of costly alternatives whereby...

We develop a two-sector search-matching model of the labor market with imperfect mobility of workers, augmented to incorporate a housing market and a frictional goods market. Homeowners use home equity as collateral to finance idiosyncratic consumption opportunities. A financial innovation that...

Actual federal funds rates in the U.S. have, at times, deviated from the recommendations of a simple Taylor rule. This paper proposes a “nowcasting” Taylor rule that preserves the form of the Taylor rule but encompasses realistic assumptions on information observable to policymakers. Because...

This paper introduces dynamic predictor selection into a New Keynesian model with heterogeneous expectations and examines its implications for monetary policy. We extend Branch and McGough (2009) by incorporating endogenous time-varying predictor proportions along the lines of Brock and Hommes...

This paper develops an adaptive learning formulation of an extension to the Ball, Mankiw, and Reis (2005) sticky information model that incorporates endogenous inattention. We show that, following an exogenous increase in the policymaker’s preferences for price vs. output stability, the...

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....

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...

We consider a simple pure exchange economy with two assets, one riskless, yielding a constant return, and one risky, paying a stochastic dividend, and we assume trading to take place in discrete time inside an endogenous price formation setting. Traders demand for the risky asset is expressed as...

This paper demonstrates how both quantitative and qualitative results of general, analytically tractable asset-pricing model in which heterogeneous agents behave consistently with a constant relative risk aversion assumption can be applied to the particular case of linear investment choices. In...

We consider a simple pure exchange economy with two assets, one riskless, yielding a constant return on investment, and one risky, paying a stochastic dividend. Trading takes place in discrete time and in each trading period the price of the risky asset is fixed by imposing market clearing...