Modeling diverse expectations in an aggregated New Keynesian Model

Mordecai Kurz, Giulia Piccillo and Howei Wu

Journal of Economic Dynamics and Control, 2013, vol. 37, issue 8, 1403-1433

Abstract: We explore a New Keynesian Model with diverse beliefs and study the aggregation problems in the log-linearized economy. We show the solution of these problems depend upon the belief structure. Agents' beliefs are described by individual state variables and satisfy three Rationality Axioms, leading to the emergence of an aggregate state variable named “mean market state of belief.” In equilibrium, endogenous variables are functions of mean market belief and this state variable is the tool used to solve the aggregation problems.

Keywords: New Keynesian Model; Heterogenous beliefs; Market state of belief; Bayesian learning; Updating beliefs; Rational beliefs; Monetary policy rule (search for similar items in EconPapers)
JEL-codes: C53 D8 D84 E27 E42 E52 G12 G14 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:37:y:2013:i:8:p:1403-1433

DOI: 10.1016/j.jedc.2013.01.016

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