The rational expectations paradigm is dominant in current macroeconomic theory and
in the associated empirical work. In many situations, however, such assumption is unrealistically strong.
My research revisits the way the formation of expectations is modeled by relaxing the assumption of rational expectations,
and introducing more "behavioral" elements. It recognizes that economic subjects are attempting to learn about
the uncertain economic environment they live in and are likely to revise their
beliefs in light of past experiences. In this framework, my work studies
the effects that deviations from full rationality,
learning behavior, psychological factors, have on the persistence and volatility of macroeconomic variables,
on the response of the economy to fundamental shocks, and on the magnitude of business cycle fluctuations in general.
In recent research, I show that shifts in "sentiment", i.e. waves of unjustified optimism and pessimism, are responsible for a sizable share of economic booms and busts.
Click on the link, for a full list of Publications
In recent research, I show that shifts in "sentiment", i.e. waves of unjustified optimism and pessimism, are responsible for a sizable share of economic booms and busts.
Click on the link, for a full list of Publications
Work in Progress
- Can Heterogeneous Expectations New Keynesian Models Match the Dispersion of Survey Forecasts, (with Carolina Acuña Armenta)
- Real-World Sunspots: Evidence from Turkey's Unorthodox Monetary Policy Experiment, (with Jai Kedia)
- Evolving Beliefs and Animal Spirits in the Euro Area, (with Nikolaos Charalampidis)
Recent Working Papers
- Expectational Data in DSGE Models, forthcoming Chapter for the Handbook of Economic Expectations.
- Behavioral New Keynesian Models: Learning vs. Cognitive Discounting, (with Greta Meggiorini)
- Heterogeneity in Individual Expectations, Sentiment, and Constant-Gain Learning, (with Stephen Cole), May, 2020
- COVID-19 Outbreak, Social Response, and Early Economic Effects: A Global VAR Analysis of Cross-Country Interdependencies, April, 2020 (published in Journal of Population Economics). Also available as GLO Discussion Paper, or as CESifo Working Paper.
- Heterogeneous Expectations, Indeterminacy, and Postwar US Business Cycles (with Francisco Ilabaca), March, 2020.
- Perceived Uncertainty Shocks, Excess Optimism-Pessimism, and Learning in the Business Cycle, (with Pratiti Chatterjee), October, 2019.
- Bounded Rationality, Monetary Policy, and Macroeconomic Stability (with Francisco Ilabaca and Greta Meggiorini), May, 2019.
- Sentiment and the U.S. Business Cycle
- "Expectations and Learning as Drivers of the Business Cycle" CEPR Discussion Paper #7743, February 2010.
State-of-the-art DSGE models typically abstract from any role of psychological factors in driving business cycles. In this paper I model ``sentiment" in an empirically realistic model of the U.S. economy and show that sentiment shocks can explain almost half of business cycle fluctuations.
This is the WP version of the EJ, 2011, article, here with more robustness analysis
Older Working Papers
- "Adaptive Learning and Inflation Persistence", June 2004.