This paper develops algorithms that solve for optimal discretionary and optimal pre-commitment policies in rational-expectations models. The techniques developed are simpler to apply than existing methods; they do not require identifying and separating predetermined variables from jump...

Ball (1997) shows using a small closed economy model that nominal GDP targeting can lead to instability. This paper extends Ball's model to uncover the role inflation expectations play in generating this instability. By changing the process by which inflation expectations are formed in the...

One of the more puzzling results in the expectations hypothesis (EH) testing literature is the Campbell-Shiller paradox. In an influential paper, Campbell and Shiller (1991) found that “the slope of the term structure almost always gives a forecast in the wrong direction for the short-term...

Traditionally, monetary policy has been conducted under a veil of secrecy. In its landmark Freedom of Information Act case, the Federal Reserve argued that it needed to delay the disclosure of its policy decision, claiming that immediate disclosure would cause the market to overreact or react in...

A comparison of the performance of forecasts by economists (the Livingston survey), households (the Michigan Survey of Consumer Finances), and a time series model (ARIMA).

A review of the literature concerning how individuals learn to form rational expectations and a discussion of the meaning of rationality in a macroeconomy characterized by highly decentralized markets.

This paper examines the robustness characteristics of optimal control policies derived under the assumption of rational expectations to alternative models of expectations formation and uncertainty about the natural rates of interest and unemployment. We assume that agents have imperfect...

Three surveys of exchange rate expectations allow us to measure directly the expected rates of return on yen versus dollars. Expectations of yen appreciation against the dollar have been (1) consistently large, (2) variable, and (3) greater than the forward premium, implying that investors were...