Research

Keeping up with the Curve: Learning, Evolving Beliefs and the Anchoring of Expectations

Added: October 23, 2025

(Job Market Paper) I explain the behavior of inflation, unemployment, and long-run inflation expectations in the post-war U.S. by estimating a forward-looking model in which private agents learn about structural fundamentals and the policymakers’ stabilization preferences in real-time. Learning is structural: agents understand that aggregate economic dynamics result from their optimizing behavior under imperfect knowledge. Monetary policy is conducted optimally but private agents suspect that the policymakers’ stabilization preferences are evolving, which they learn from observed policy behavior. This gives rise to a nonlinear filtering problem. The model provides a novel, information-theoretic explanation of how systematic monetary policy anchors expectations when agents are learning: an increasing emphasis on real-side stabilization has made the Fed’s policy behavior more predictable, stabilizing long-run inflation expectations while at the same time rendering short-run expectations more susceptible to supply shocks. The model offers a new explanation for the recent post-Covid inflation surge and the ``costless disinflation’’ that followed, shedding light on why it differed markedly from the crisis of the 1970s and 1980s. Download paper

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Bond market response to FOMC communication: Overreaction to Forward Guidance and Diagnostic Expectations

Added: July 24, 2025

Since 2004, the Federal Reserve has released the minutes of Federal Open Market Committee (FOMC) meetings three weeks after each policy announcement, providing a natural setting to study how financial markets process sequential policy signals. This paper examines how the yield curve responds to both FOMC announcements and the subsequent release of meeting minutes. Using high-frequency identification, I extract monetary policy shocks and decompose them into target rate, forward guidance, and yield-curve “twist” components. I document a systematic overreaction of yields to the forward guidance component of announcements, followed by a partial reversal when the corresponding minutes are released. I interpret this pattern through a model of diagnostic expectations, in which investors initially overweight salient forward guidance signals and later revise their beliefs as additional context becomes available in the minutes. Working draft

Monetary Policy as Decentralized Control: Near-optimality of Quantized Policy Rules

Added: February 11, 2025

This paper studies macroeconomic stabilization as a cooperative game: the central bank and private agents share the common goal of stabilizing the output around potential but act under different information. Policymakers observe private signals about changes in the natural rate of interest that households and firms either lack or find costly to monitor; however, interest rate adjustments are costly making it infeasible to offset them completely. Private agents adjust inflation expectations based on noisy observations on the output gap. Importantly, central bank policy influences private sector’s information by altering aggregate demand and serves as an implicit communication channel, informing them about fundamental shocks allowing for indirect stabilization through adjustment of inflation expectations. This paper draws an analogy of the problem to Witsenhausen’s counterexample, a canonical problem in decentralized control theory, where optimal strategies are inherently non-linear. The analysis shows that quantized policy rules—such as adjusting interest rates in discrete steps—can outperform linear feedback rules like the Taylor rule. Preliminary draft

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