Working Paper
Evaluating Macroeconomic Outcomes Under Asymmetries: Expectations Matter
Abstract: Asymmetries play an important role in many macroeconomic models. We show that assumptions on household and firm expectations play a key role in determining the effects of these asymmetries on macroeconomic outcomes. If households and firms have perfect foresight and hence do not account for the possibility of future shocks, then the implied longer-run averages and distributions for unemployment and inflation can differ significantly from their rational expectations counterparts. We first derive this result analytically under either an asymmetric monetary policy rule or a nonlinear Phillips curve before numerically examining some of the key nonlinearities featured in the recent literature.
JEL Classification: E32; E52; J64;
https://doi.org/10.17016/FEDS.2025.079
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File(s): File format is application/pdf https://www.federalreserve.gov/econres/feds/files/2025079pap.pdf
Bibliographic Information
Provider: Board of Governors of the Federal Reserve System (U.S.)
Part of Series: Finance and Economics Discussion Series
Publication Date: 2025-09-05
Number: 2025-079