Markov-switching rational expectations (MSRE) models can yield fresh insights beyond what linear rational expectations (LRE) models have done for macroeconomics, as Davig and Leeper (2007) and Farmer, Waggoner and Zha (2009), among others, have noted and predicted. A lack of tractable...

The recent macroeconomic literature stresses the importance of managing heterogeneous expectations in the formulation of monetary policy. We use a stylized macro model of Howitt (1992) to investigate inflation dynamics under alternative interest rate rules when agents have heterogeneous...

In a general class of Markov-switching rational expectations models, this study derives necessary and sufficient conditions for determinacy, indeterminacy and the case of no stable solution. Classification of the models into these three mutually disjoint and exhaustive subsets is completely...

This paper derives a general New Keynesian framework consistent with heterogeneous expectations by explicitly solving the micro-foundations underpinning the model. The resulting reduced form is analytically tractable and encompasses the representative rational agent benchmark as a special case....

We study a simple monetary model in which a central bank faces a boundedly rational private sector and has the goal of stabilizing inflation. The system's dynamics is generated by the interaction of the expectations about inflation of the various agents involved. A modest degree of heterogeneity...

This paper derives a general New Keynesian framework with heterogeneous expectations by explicitly solving the micro-foundations underpinning the model. The resulting reduced form is analytically tractable and encompasses the representative rational agent benchmark as a special case. We specify...

This work analyses the implications, in terms of determinacy and E-stability of equilibrium, of a policy rule that responds to private sector expectations in forward looking models. In the literature, this type of policy has been both recommended and criticized. We try to understand the reasons...

Expectations play a central role in modern macroeconomics. The econometric learning approach, in line with the cognitive consistency principle, models agents as forming expectations by estimating and updating subjective forecasting models in real time. This approach provides a stability test for...

Most studies of optimal monetary policy under learning rely on optimality conditions derived for the case when agents have rational expectations. In this paper, we derive optimal monetary policy in an economy where the Central Bank knows, and makes active use of, the learning algorithm agents...