Should policymakers offer forward guidance in terms of a path for an instrument such as interest rates or a target for an outcome such as unemployment? We study how the optimal approach depends on a departure from rational expectations. People have a limited understanding of the behavior of...

We document a new fact about expectations: in response to the main shocks driving the business cycle, expectations underreact initially but overshoot later on. We show how previous, seemingly conflicting, evidence can be understood as different facets of this fact. We finally explain what the...

We study the macroeconomic implications of viral, belief-altering narratives. Empirically, we use natural-language-processing methods to measure narratives in the text of all US public firms' end-of-year reports (Forms 10-K). We find that: (i) firms' hiring decisions respond strongly to...

Why do markets and central banks systematically hold different beliefs about the path of policy and the economy? I use a simple signal extraction model to contrast predictions based on three mechanisms: asymmetric information, heterogeneous beliefs about the policy rule, and heterogeneous use of...

When optimizing consumption-savings decisions is costly, people may instead rely on quick-fixes, simple policy functions that avoid these costs. We introduce a model of quick-fixing. To study it empirically, we field a novel survey that measures households' consumption policy functions in...

In macroeconomic models, it is standard practice to assume that imperfectly competitive firms either set a price in advance and supply at the market-clearing quantity (price-setting) or set a quantity in advance and sell at the market-clearing price (quantity-setting). However, under imperfect...

Modern theories of aggregate supply are built on the foundation that firms set prices and commit to producing whatever the market demands. We remove this strategic restriction and allow firms to choose supply functions, mappings that describe the prices charged at each quantity of production....