The impact of anticipated policy changes when agents form expectations using adaptive learning rather than rational expectations is considered. Agents are assumed to combine limited structural knowledge with a standard adaptive learning rule. These issues are analyzed using two well-known...

Monetary policy may play a substantial role in mitigating the effects of financial crises. In this paper, I suppose that the economy occasionally but infrequently experiences crises, where financial variables affect the broader economy. I analyze optimal monetary policy under such financial...

Under rational expectations and risk neutrality the linear projection of exchange-rate change on the forward premium has a unit coefficient. However, empirical estimates of this coefficient are significantly less than one and often negative. We show that replacing rational expectations by...