Mis-specified Forecasts and Myopia in an Estimated New Keynesian Model

Ina Hajdini

American Economic Journal: Macroeconomics, 2026, vol. 18, issue 2, 188-226

Abstract: I consider a New Keynesian framework where agents combine mis-specified forecasts and myopia to form expectations. This combination is consistent with inflation forecasts' late overshooting, underreaction to forecast revisions, and overreaction to current inflation. Estimating the general equilibrium model on macroeconomic data shows that: (i) data favor combining autoregressive mis-specified forecasting rules with myopia over other alternatives; (ii) learning of mis-specified rules improves model fit; and (iii) mis-specified forecasts generate substantial internal persistence and amplification to exogenous shocks. Inflation expectations simulated from the best-fitting model closely match survey data, providing external validation for the proposed expectations formation process.

JEL-codes: D84 E12 E17 E21 E23 E31 E37 (search for similar items in EconPapers)
Date: 2026
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/mac.20230054 (application/pdf)
https://doi.org/10.3886/E209448V1 (text/html)
https://www.aeaweb.org/articles/materials/24838 (application/pdf)
https://www.aeaweb.org/articles/materials/24839 (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aejmac:v:18:y:2026:i:2:p:188-226

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

DOI: 10.1257/mac.20230054

Access Statistics for this article

American Economic Journal: Macroeconomics is currently edited by Simon Gilchrist

More articles in American Economic Journal: Macroeconomics from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().