Reconciling Empirics and Theory: The Behavioral Hybrid New Keynesian Model

Atahan Afsar; José Elías Gallegos; Richard Jaimes; Edgar Silgado Gómez, José Elías Gallegos, Richard Jaimes and Edgar Silgado Gómez
Authors registered in the RePEc Author Service: Edgar Silgado-Gómez, José-Elías Gallegos and Richard Jaimes

Vniversitas Económica, 2020, vol. 0, issue 0, No 18560, 41 pages

Abstract: Abstract Structural estimates of the standard New Keynesian model are at odds with microeconomic estimates. To reconcile these findings, we develop and estimate a behav- ioral New Keynesian model augmented with backward-looking households and firms. We find (i) strong evidence for bounded rationality, with a cognitive discount fac- tor estimate of 0.4 at quarterly frequency; and (ii) that the behavioral setting with backward-looking agents helps us in harmonizing the New Keynesian theory with em- pirical studies. We suggest that both cognitive discounting and anchoring are essential, first, to match empirical estimates for certain parameters of interest, and second, to obtain the hump-shaped and initially muted impulse-response functions that we observe in the data.

Keywords: New Keynesian; Bounded Rationality; Bayesian Estimation. (search for similar items in EconPapers)
JEL-codes: E27 E52 E71 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:col:000416:018560

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