"Misspecified Forecasts and Myopia in an Estimated New Keynesian Model" (Job Market Paper)
The paper considers a New Keynesian model in which agents form expectations based on a combination of misspecified forecasts and myopia. The proposed expectation formation process is tested against Rational Expectations (RE), as well other assumptions about expectations, with inflation forecasting data from the U.S. Survey of Professional Forecasters. The paper then derives the general equilibrium solution consistent with the proposed expectation formation process and estimates the model with likelihood-based Bayesian methods. The paper yields three novel results: (i) Data strongly prefer the combination of autoregressive misspecified forecasting rules and myopia over other alternatives, including RE or RE subject to information rigidities; (ii) The best fitting expectations formation process for both households and firms is characterized by high degrees of myopia and simple AR(1) forecasting rules; (iii) Despite the absence of real rigidities typically found necessary for New Keynesian models with RE, the estimated model with autoregressive forecasts and myopia generates substantial internal persistence and amplification to exogenous shocks.
"Consistent Expectations Equilibria in Markov Regime Switching Models and Inflation Dynamics" with Marco Airaudo (resubmitted, International Economic Review)
We propose a general framework to study the existence of Stochastic Consistent Expectations Equilibria (SCEE) in linear Markov regime switching models. A SCEE exists when the model-implied mean and first order autocorrelation coincide with those predicted by agents via simple but misspecified forecasting rules of the type documented by empirical/experimental evidence. By focusing on a regime-switching monetary model, we find that the policy space where at least one SCEE exists is rather wide, and extends well beyond that guaranteeing a determinate rational expectations equilibrium if the dovish regime is short-lived. Once appropriately parameterized, the SCEE model features a strong endogenous amplification mechanism that helps match the observed patterns of inflation persistence in the data, in particular the near unit root dynamics observed before the Great Moderation.
Work in progress
"Regime Switches, Agents’ Misspecified Forecasts and Myopia, and U.S. Macroeconomic Dynamics"
"Monetary Policy and Asset Prices with Infinite Horizon Learning" (with Marco Airaudo)
"Consistent Expectations Equilibria with Imperfect Common Knowledge: Implications for the Forward Guidance Puzzle" with Marco Airaudo
Other research - Mathematics
"The Fundamental Group of SO(n) Via Quotients of Braid Groups" with Orlin Stoytchev (submitted)