This essay links some of my own work on expectations, learning and bounded rationality to the inspiring ideas of Jean-Michel Grandmont. In particular, my work on consistent expectations and behavioral learning equilibria may be seen as formalizations of JMG's ideas of self-fulfilling mistakes....

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 framework:...

I develop an adaptive learning model to study the welfare effects of Social Security policy uncertainty in an aging economy. Agents combine full knowledge of the political process (which Social Security reforms are possible and when they could occur) with limited knowledge about the structure of...

In a recent paper Ganguli and Yang [2009] demonstrate, that there can exist multiple equilibria in a financial market model á la Grossman and Stiglitz [1980] if traders possess private information regarding the supply of the risky asset. The additional equilibria differ in some important...

We study firms' incentives to acquire costly information in booms and recessions to understand the role of endogenous information in explaining asymmetric business cycles. When the economy has been in a boom in the previous period, and firms enter the current period with an optimistic belief,...

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...

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 show that a so-called expectations-based optimal monetary policy rule has desirable properties in a standard New Keynesian model augmented with a cost channel and inflation rate expectations that are partly backward-looking. In particular, optimal monetary policy under commitment is...