Behavioral Macroeconomics—A Basis for Developing Sustainable Economic Policies

Cristina-Elena Bejenaru (), Adam Altăr-Samuel, Alexandra Cheptiș and Alin-Ioan Vid
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Cristina-Elena Bejenaru: School of Finance, The Bucharest University of Economic Studies, 010961 Bucharest, Romania
Adam Altăr-Samuel: Department of Computer Science, Statistics and Mathematics, Faculty of Computer Science for Business Management, Romanian-American University, 012101 Bucharest, Romania
Alexandra Cheptiș: School of Finance, The Bucharest University of Economic Studies, 010961 Bucharest, Romania
Alin-Ioan Vid: School of Finance, The Bucharest University of Economic Studies, 010961 Bucharest, Romania

Sustainability, 2025, vol. 17, issue 4, 1-17

Abstract: This paper contributes to the literature by demonstrating that behavioral macroeconomic models better explain macroeconomic volatility in emerging economies compared to traditional rational expectations frameworks. We explore behavioral macroeconomics as a foundation for sustainable economic policies by comparing New Keynesian models under rational expectations and behavioral heuristics across multiple economies. The model parameters are estimated using the Generalized Method of Moments (GMM) for rational expectations and the Simulated Method of Moments (SMM) for the behavioral framework, evaluating their ability to replicate empirical second moments of output, inflation, and interest rates. The GMM, suited for linear models, provides analytical solutions, ensuring computational efficiency, while the SMM, designed for non-linear models, enables greater flexibility by generating simulated data and departing from restrictive DSGE assumptions. Our findings reveal that the behavioral model—incorporating heterogeneity, heuristic switching, and bounded rationality—better captures the persistent and volatile macroeconomic conditions observed in Central and Eastern European (CEE) economies. In contrast, rational expectations models perform better in advanced economies, where agents rely more on forward-looking information. These results emphasize the need to integrate behavioral features into macroeconomic modeling to enhance empirical accuracy and inform sustainable monetary policy tailored to diverse economic environments.

Keywords: macroeconomics; Keynesian economics; simulated models; business fluctuations; macro-based behavioral economics; output; inflation; interest rates (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:17:y:2025:i:4:p:1552-:d:1590533

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