Debt, Policy Uncertainty, and Expectations Stabilization

Eusepi, Stefano; Preston, Bruce

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Debt, Policy Uncertainty, and Expectations Stabilization

Date

2012

Authors

Eusepi, Stefano

Preston, Bruce

Publisher

MIT Press

Abstract

This paper develops a model of policy regime uncertainty and its consequences for stabilizing expectations. Because of learning dynamics, uncertainty about monetary and fiscal policy is shown to restrict, relative to a rational expectations analysis, the