Evaluating Macroeconomic Outcomes Under Asymmetries: Expectations Matter

Brent Bundick, Isabel Cairo and Nicolas Petrosky-Nadeau

No 2025-17, Working Paper Series from Federal Reserve Bank of San Francisco

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.

Keywords: asymmetries; macroeconomics; business cycles; expectations (search for similar items in EconPapers)
JEL-codes: E32 E52 J64 (search for similar items in EconPapers)
Pages: 34
Date: 2025-09-05
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:101697

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DOI: 10.24148/wp2025-17

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