Heterogeneous expectations, indeterminacy, and postwar US business cycles

This paper estimates a New Keynesian model extended to include heterogeneous expectations: consumers and firms form either rational or boundedly-rational expectations. The inclusion of expectations alters the determinacy properties model, with details potentially becoming more influential than Taylor principle for equilibrium stability. is estimated Bayesian techniques, using rolling windows allowing parameters fall both in indeterminacy regions. reveal large shares agents who depart from Heterogeneous are decisively preferred by data everywhere sample. Finally, revisits narrative that sees postwar US macroeconomic as consistent pre-1979 sample, switch starting early 1980s, it shows overall robust