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...

We discover sentiment-driven equilibria in popular models of imperfect risk sharing. In these equilibria, sentiment dynamics behave like uncertainty shocks, in the sense that self-fulfilled beliefs about volatility drive aggregate fluctuations. Because such fluctuations can decouple from the...

We study the global dynamics of the fully stochastic nonlinear version of the New Keynesian model and analyze the efficacy of various policies as equilibrium selection tools in this context. First, we unveil a new class of equilibria, characterized by selffulfilled beliefs about output...