In this paper the authors explore the ability of simple monetary models with bounded rationality to account for the joint distribution of money and prices. They impose restrictions on the size of the mistakes agents can make in equilibrium and argue that countries with high inflation are likely to satisfy these restrictions. Their computations show that the model with bounded rationality does n...

This paper analyzes the effects of lower bound for interest rates on distributions inflation and rates. In a New Keynesian model with bound, two equilibria emerge: policy is mostly unconstrained in “target equilibrium,” whereas constrained “liquidity trap equilibrium.” Using options data inflation, we find forecast densities consistent target equilibrium no evidence favor liquidity equilibrium....

We estimate the dynamic stochastic general equilibrium model of Christiano, Eichenbaum, and Evans (2005) on United Kingdom data. Our estimates suggest that price stickiness is a more important source of nominal rigidity in the U.K. than wage stickiness. Our estimates of parameters governing investment behavior are only well behaved when post-1979 observations are included, which reflects govern...

We estimate a behavioral New Keynesian (NK) model in which households and firms plan over finite horizon. The finite-horizon planning (FHP) outperforms rational expectations versions of the NK as well other models. In FHP model, are forward-looking thinking about events their horizon but backward-looking regarding beyond that point. This gives rise to substantial aggregate persistence without r...

We examine robustness of stability under learning to observability of exogenous shocks. Regardless of observability assumptions, the minimal state variable solution is robustly stable under learning provided the expectational feedback is not both positive and large, while the nonfundamental solution is never robustly stable. Overlapping generations and New Keynesian models are considered and co...

The papers in this symposium address the issue of multiple equilibria that can be induced by monetary policy in models with capital accumulation. In particular they examine how the “Taylor Principle”, under which interest rates respond more than proportionately to increases in inflation, can generate multiple equilibria. They also explore the design of policies to avoid the problem of multiple ...

The data in Fehr and Tyran (2001) and Petersen and Winn (2014) show that money illusion plays an important role in nominal price adjustment after a fully anticipated negative monetary shock. Money illusion affects subjects’ expectations, and causes pronounced nominal inertia after a negative shock but much less inertia after a positive shock. Thus Petersen and Winn (2014) provide a misleading i...