This paper estimates a New Keynesian model extended to include heterogeneous expectations, to revisit the evidence that postwar US macroeconomic data can be explained as the outcome of passive monetary policy, indeterminacy, and sunspot-driven fluctuations in the pre-1979 sample, with a switch...

This paper shows that belief‐driven economic fluctuations are a general feature of many determinate macroeconomic models. In environments with hidden state variables, forecast‐model misspecification can break the link between indeterminacy and sunspots by establishing the existence of...

We study a one-sector growth model which is standard except for the presence of an externality in the production function. The set of competitive equilibria is large. It includes constant equilibria, sunspot equilibria, cyclical and chaotic equilibria, and equilibria with deterministic or...

William Stanley Jevons’s “Sunspot Theory” of business cycles related the number of spots on the sun to economic activity, primarily through the weather and agriculture, but also through psychological components like optimism and uncertainty. The theory is widely discredited, but John...

This paper estimates a New Keynesian model extended to include heterogeneous expectations, to revisit the evidence that postwar US macroeconomic data can be explained as the outcome of passive monetary policy, indeterminacy, and sunspot-driven fluctuations in the pre-1979 sample, with a switch...

A sunspot variable is any random variable that is not related to fundamental factors of the economy but a potential coordination device. The coordination power of sunspots has been analysed in theory and in experiments. However, some have discussed whether sunspots, e.g., public announcements...

The Indeterminacy School in Macroeconomics exploits the fact that macroeconomic models often display multiple equilibria to understand real-world phenomena. There are two distinct phases in the evolution of its history. The first phase began as a research agenda at the University of Pennsylvania...

Models with sunspot equilibria have long been a topic of interest among economists. It then becomes an interesting question to ask whether there is empirical support for their existence. One approach to answering this question is through lab experiments. Such equilibria have been successfully...

Models with sunspot equilibria have long been a topic of interest among economists. It then becomes an interesting question to ask whether there is empirical support for their existence. One approach to answer this question is through lab experiments. Such equilibria have been successfully...

We study equilibrium determination in an environment where two kinds of agents have different information sets: The fully informed agents know the structure of the model and observe histories of all exogenous and endogenous variables. The less informed agents observe only a strict subset of the...

The Indeterminacy School in Macroeconomics exploits the fact that macroeconomic models often display multiple equilibria to understand real-world phenomena. There are two distinct phases in the evolution of its history. The first phase began as a research agenda at the University of Pennsylvania...

This paper determines conditions for the existence of a unique rational expectations equilibrium-determinacy-in a monetary policy switching economy. We depart from the existing literature by providing such conditions considering all bounded equilibria. We then apply these conditions to a new...

In expectations-driven liquidity traps, a higher inflation target is associated with lower inflation and consumption. As a result, introducing the possibility of expectations-driven liquidity traps to an otherwise standard model lowers the optimal inflation target. Using a calibrated New...

We study optimal monetary and fiscal policy in a New Keynesian model where occasional declines in agents' confidence give rise to persistent liquidity trap episodes. There is no straightforward recipe for enhancing welfare in this economy. Raising the inflation target or appointing an...

We introduce consumption habits into an exogenous growth model augmented with a detailed government sector, and calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We show that in contrast to the case without habits,...

In U.S. data 1981-2012, unsecured firm credit moves procyclically and tends to lead GDP, while secured firm credit is acyclical; similarly, shocks to unsecured firm credit explain a far larger fraction of output fluctuations than shocks to secured credit. In this paper we develop a tractable...

We solve and test experimentally a global-games model of speculative attacks where agents can choose whether to read, at a cost, a payoff irrelevant (sunspot) announcement. Assuming that subjects exogenously believe some others to follow sunspots, we provide conditions for a unique equilibrium...

What is the role of the media in coordinating and mobilizing insurgency against a foreign military occupation? We analyze this question in the context of the Nazi-fascist occupation of Italy during WWII. We study the effect of BBC radio counter-propaganda (Radio Londra) on the intensity of...

What is the role of the media in coordinating and mobilizing insurgency against a foreign military occupation? We analyze this question in the context of the Nazi-fascist occupation of Italy during WWII. We study the effect of BBC radio counter-propaganda (Radio Londra) on the intensity of...

What is the role of the media in coordinating and mobilizing insurgency against a foreign military occupation? We analyze this question in the context of the Nazi-fascist occupation of Italy during WWII. We study the effect of BBC radio counter-propaganda (Radio Londra) on the intensity of...

We assess whether “undue optimism” (Pigou) contributes to business cycle fluctuations. In our analysis, optimism (or pessimism) pertains to total factor productivity, which determines economic activity in the long run. Optimism shocks are perceived changes in productivity that do not...

We solve and test experimentally a global-games model of speculative attacks where agents can choose whether to read, at a cost, a payoff irrelevant (sunspot) announcement. Assuming that subjects exogenously believe some others to follow sunspots, we provide conditions for a unique equilibrium...

We introduce consumption habits into an exogenous growth model augmented with a detailed government sector, and calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We show that in contrast to the case without habits,...