This paper addresses the output-price volatility puzzle by studying the interaction of optimal monetary policy and agents' beliefs. We assume that agents choose their information acquisition rate by minimizing a loss function that depends on expected forecast errors and information costs....

This paper develops an adaptive learning formulation of an extension to the Ball, Mankiw, and Reis (2005) sticky information model that incorporates endogenous inattention. We show that, following an exogenous increase in the policymaker's preferences for price vs. output stability, the learning...

We consider a linear stochastic univariate rational expectations model, with a predetermined variable, and provide alternative representations of SSEs (stationary sunspot equilibria). For a strict subset of the parameter space there exist SSEs that are locally stable under least squares learning...

We extend common factor analysis to a multi-dimensional setting by considering a bivariate reduced form model consistent with many Real Business Cycle type models. We show how to obtain new representations of sunspots and find that there are parameter regions in which these sunspots are stable...

We consider a linear stochastic univariate rational expectations model, with a predetermined variable, and consider solutions driven by an extraneous finite state Markov process as well as by the fundamental noise. We obtain conditions for existence of noisy k-state sunspot equilibria (noisy...