Heterogeneous Expectations and Micro-Foundations in Macroeconomics✶
William A. Branch⁎,1; Bruce McGough† ⁎University of California, Irvine, CA, United States†University of Oregon, Eugene, OR, United States1Corresponding author. email address: wbranch@uci.edu
Abstract
This chapter provides an overview of recent models of heterogeneous expectations in macroeconomics. We begin with a description of household behavior in an environment with features common to many models in asset pricing, monetary theory, and New Keynesian macroeconomics. We demonstrate issues facing modelers when agents are boundedly rational and have (possibly) heterogeneous beliefs about the future evolution of endogenous state variables. These issues can ...
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