Short-Term Planning, Monetary Policy, and Macroeconomic Persistence

Christopher Gust, Edward Herbst and David López-Salido

American Economic Journal: Macroeconomics, 2022, vol. 14, issue 4, 174-209

Abstract: We estimate a behavioral New Keynesian (NK) model in which households and firms plan over a finite horizon. The finite-horizon planning (FHP) model outperforms rational expectations versions of the NK model as well as other behavioral NK models. In the FHP model, households and firms are forward-looking in thinking about events over their planning horizon but are backward-looking regarding events beyond that point. This gives rise to substantial aggregate persistence without resorting to additional features such as habit persistence and price contracts indexed to lagged inflation.

JEL-codes: E12 E23 E31 E32 E52 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Short-term Planning, Monetary Policy, and Macroeconomic Persistence (2021)
Working Paper: Short-term Planning, Monetary Policy, and Macroeconomic Persistence (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:aea:aejmac:v:14:y:2022:i:4:p:174-209

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DOI: 10.1257/mac.20200058

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