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...

The design and analysis of optimal monetary policy is usually guided by the paradigm of homogeneous rational expectations. Instead, we examine the dynamic consequences of implementation strategies, when the actual economy features expectational heterogeneity. Agents have either rational or...

This discussion paper led to a publication in 'Macroeconomic Dynamics' (2013). Vol. 17(8), pp. 1574-1604.<P> 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...</p>

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...

This paper derives a general New Keynesian framework with heterogeneous expectations by explicitly solving the micro-foundations underpinning the model. The resulting reduced form is analytically tractable and encompasses the representative rational agent benchmark as a special case. We specify...

We introduce Behavioral Learning Equilibria (BLE) into a multivariate linear framework and apply it to New Keynesian DSGE models. In a BLE, boundedly rational agents use simple, but optimal AR(1) forecasting rules whose parameters are consistent with the observed sample mean and autocorrelation...

This paper analyzes how the formation of expectations constrains monetary and fiscal policy design. Economic agents have imperfect knowledge about the economic environment and the policy regime in place. Households and firms learn about the policy regime using historical data. Regime uncertainty...

This paper demonstrates that the adaptive learning approach to modelling private sector expectations can be used as an equilibriumselection mechanism in a natural-rate monetary model with unemployment persistence.In particular, it is shown that only one of the two rational expectations...

We study the impact of adaptive learning for the design of a robust monetary policy using a small open-economy New Keynesian model. We find that slightly departing from rational expectations substantially changes the way the central bank deals with model misspecification. Learning induces an...

We find that investors' expectations of U.S. nominal yields, at different maturities and forecast horizons, exhibit significant time-variation during the Great Moderation. Nominal zero-coupon bond yields for the U.S. are used to fit the yield curve using a latent factor model. In the benchmark...