We propose a generalization of the rational expectations (RE) hypothesis: as in the original approach by Muth (1961), the case of multiple solutions is the natural case, and expectations are formed by randomizing across the infinite RE solutions. We call our approach: "rational sunspots". The...

This paper uses the Kalman filter to estimate potential output as a latent process. We estimate two Dynamic Linear Models, comparing the results obtained through a traditional and a New Keynesian model. We verify that the traditional measures of output gap, even if usually applied in the...

The aim of this paper is to analyze the forecasting performance of alternative model for the US inflation rate over the period 1950.1-2002.7. NAIRU Phillips curve models forecasts are contrasted with those obtained by a special class of nonlinear time series models, the threshold autoregressive...

Recent literature reaches contrasting conclusions on the ability of price/wage staggering models to generate output persistence. The authors derive fairly general results from a stylised log-linear model which encompasses most of the microfound model of price/wage staggering.

Recent quantitative dynamic general equilibrium models have cast serious doubts on the explanatory power of staggered wage/price setting in accounting for both output and inflation persistence. The authors enlarge a dynamic general equilibrium model with staggered wages by incorporating...

In this paper we incorporate staggered wage setting a la Taylor (1979) into an optimizing dynamic general equilibrium framework. The aim is to study whether staggered wages could induce a high degree of persistence in the real effects of money shocks, as some recent studies have suggested.