We present the case for centrality of overreaction in expectations addressing important challenges finance and macroeconomics. First, non-rational by market participants can be measured modeled ways that address some key posed rational revolution, most importantly idea economic agents are forward-looking. Second, belief account many long-standing empirical puzzles macro finance, which emphasize...

1 The retirement of George Perry and Bill Brainard gives us an opportunity to say publicly what we have often said privately: Brookings Papers is an important national institution. It is important because it has set the right tone for US macro policy. George and Bill are both Keynesians, not just in the narrow tradition of IS-LM models with Phillips Curves, but also in their broader methodologi...

A review of recent advances in open economy analysis under segmented international financial markets. set modeling tools that have been used to understand crises, the ensuing policy response (e.g., Quantitative Easing and FX intervention), deviations from arbitrage (CIP deviations), more generally impact capital flows on exchange rates. This approach has also shed a different light classic topi...

General financial models have become workhorse models in the fields of macroeconomics and finance. These models have been developed and extensively studied by general equilibrium theorists. What makes them so applicable for macroeconomics and finance is the well accepted fact that models with a representative agent and without financial frictions yield equilibrium outcomes that are inconsistent...