Should a policymaker manage expectations by offering forward guidance in terms of the likely value of a future policy instrument or a target for an equilibrium outcome such as aggregate output? We study how the optimal approach depends on plausible bounds on agents' depth of knowledge and...

We argue that standard modeling practices often overstate the potency of general-equilibrium (GE) mechanisms. We formalize the notion that GE adjustment is weak, or that it takes time, by modifying an elementary Walrasian economy in two alternative manners. In one, we replace Rational...

How does the economy respond to news about future policies or future fundamentals? Standard practice assumes that agents have common knowledge of such news and face no uncertainty about how others will respond. Relaxing this assumption attenuates the general-equilibrium effects of news and...