An autocoherent model is a model which is validated by the data if people use it to form their expectations. A structural model may be incorrect but autocoherent, thus supporting a self-confirming equilibrium. This paper explores some mathematical properties of autocoherent models. The first...

In Hens (1997), a new adjustment process is proposed for a setting with reopening spot and asset markets. He argues by means of an intemporal variant of Scarf's example that this process is more stable than the other processes, although in general it might be more stable or less stable. This...

In this paper we analyze disinflation in two environments.One in which the central bank has perfect knowledge, in the sense that it understands and observes the process by which private sector inflation expectations are generated, and one in which the central bank has to learn the private sector...

In this paper we incorporate the term structure of interest rates in a standard inflation forecast targeting framework.We find that under flexible inflation targeting and uncertainty in the degree of persistence in the economy, allowing for active learning possibilities has e®ects on the...

Abstract: This paper models expectation formation by taking into account that agents produce heterogeneous expectations due to model uncertainty, informational frictions and different capacities for processing information. We show that there are two general classes of steady states within this...