Regime-switching rational expectations models, in which the parameters of the model evolve according to a finite 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...

This paper examines the implications of forward- and backward-looking monetary policy rules in an environment with monetary-fiscal interactions. We find that the unique stationary rational expectations equilibrium (REE) is always non-Ricardian under simple implementable monetary policy rules....

Incorporating adaptive learning into macroeconomics requires assumptions about how agents incorporate their forecasts into their decision-making. We develop a theory of bounded rationality that we call finite-horizon learning. This approach generalizes the two existing benchmarks in the...

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...

Within a New Keynesian model, we incorporate bounded rationality at the individual agent level, and we determine restrictions on expectations operators sufficient to imply aggregate IS and AS relations of the same functional form as those under rationality. This result provides dual...

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...