RWP 25-09, September 2025
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.
JEL classifications: E32, E52, J64
Article Citation
Bundick, Brent, Isabel Cairó, and Nicolas Petroksy-Nadeau. 2025. “Evaluating Macroeconomic Outcomes Under Asymmetries: Expectations Matter.” Federal Reserve Bank of Kansas City, Research Working Paper no. 25-09, September. Available at External Linkhttps://doi.org/10.18651/RWP2025-09
The views expressed are those of the authors and do not necessarily reflect the positions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.