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This paper assesses the implications for optimal discretionary monetary policy if the slope of the Phillips curve changes. The paper first derives a Phillips curve from the optimal pricing decision of a monopolistic firm that faces a changing cost of price adjustment. The second aspect of the paper constructs a utility-based welfare criterion. A novel(More)
This paper develops a dynamic asset pricing model with persistent heterogeneous beliefs. The model features competitive traders who receive idiosyn-cratic signals about an underlying fundamentals process. We adapt Futia's (1981) frequency domain methods to derive conditions on the fundamentals that guarantee noninvertibility of the mapping between observed(More)
Accommodating asymmetric information in a dynamic asset pricing model is technically challenging due to the problems associated with higher-order expectations. That is, rational investors are forced into a situation where they must forecast the forecasts of other agents. In a dynamic setting, this problem telescopes into the infinite future and the(More)
A rational expectations framework is developed to study the consequences of alternative means to resolve the " unfunded liabilities " problem—unsustainable exponential growth in federal Social Security, Medicare, and Medicaid spending with no plan to finance it. Resolution requires specifying a probability distribution for how and when monetary and fiscal(More)
We use a rational expectations framework to assess the implications of rising debt in an environment with a " fiscal limit. The fiscal limit is defined as the point where the government no longer has the ability to finance higher debt levels by increasing taxes, so either an adjustment to fiscal spending or monetary policy must occur to stabilize debt. We(More)
We study Rational Expectations equilibria in dynamic models with dispersed information and signal extraction from endogenous variables. An Information Equilibrium is established that delivers existence and uniqueness conditions in a new class of RE equilibria where agents remain dispersedly informed even after observing the entire history of equilibrium(More)
We study Rational Expectations equilibria in dynamic models with dispersed information and signal extraction from endogenous variables. Existence and uniqueness conditions for a new class of rational expectations equilibria in economies with dispersed information are established. The novelty of this class lies in the presence of confounding dynamics in the(More)
This paper develops a dynamic asset pricing model with persistent heterogeneous beliefs. The model features competitive traders who receive idiosyn-cratic signals about an underlying fundamentals process. We adapt Futia's (1981) frequency domain methods to derive conditions on the fundamentals that guarantee noninvertibility of the mapping between observed(More)
Accommodating asymmetric information in a dynamic asset pricing model is technically challenging due to the problems associated with higher-order expectations. That is, rational investors are forced into a situation where they must forecast the forecasts of other agents. In a dynamic setting, this problem telescopes into the infinite future and the(More)