The Great Recession and the Global Financial Crisis have left many developed countries with low interest rates and high levels of public debt, thus limiting the ability of policymakers to fight the next recession. Whether new fiscal stimulus programs would be jeopardized by these already heavy...

The conventional wisdom in macroeconomic modeling is to attribute business cycle fluctuations to innovations in the level of the fundamentals. Though volatility shocks could be important too, their propagating mechanism is still not well understood partly because modeling the latent volatilities...

The fact that most of the persistent declines in output since the Great Recession have parlayed into equivalent declines in measures of potential output is commonly interpreted as implying that output will not return to previous trends. Using a variety of estimates of potential output for the...

We implement a new survey of firms, focusing on their higher-order macroeconomic expectations. The survey provides a novel set of stylized facts regarding the relationship between first-order and higher-order expectations of economic agents, including how they adjust their beliefs in response to...

We assess whether central banks may use inflation expectations as a policy tool for stabilization purposes. We review recent work on how expectations of agents are formed and how they affect their economic decisions. Empirical evidence suggests that inflation expectations of households and firms...

This paper studies information diffusion in social media and the role of bots in shaping public opinions. Using Twitter data on the 2016 E.U. Referendum (“Brexit”) and the 2016 U.S. Presidential Election, we find that diffusion of information on Twitter is largely complete within 1-2 hours....

We use a unique design feature of a survey of Italian firms to study the causal effect of inflation expectations on firms’ economic decisions. In the survey, a randomly chosen subset of firms is repeatedly treated with information about recent inflation whereas other firms are not. This...

We propose a new approach to test of the null of full-information rational expectations which is informative about whether rejections of the null reflect departures from rationality or full-information. This approach can also quantify the economic significance of departures from the null by...

A key issue in current research and policy is the size of fiscal multipliers when the economy is in recession. We provide three insights. First, using regime-switching models, we find large differences in the size of spending multipliers in recessions and expansions with fiscal policy being...

We study the effects of positive steady-state inflation in New Keynesian models subject to the zero bound on interest rates. We derive the utility-based welfare loss function taking into account the effects of positive steady-state inflation and show that steady-state inflation affects welfare...