Estimating a Behavioral New Keynesian Model with the Zero Lower Bound

Yasuo Hirose, Hirokuni Iiboshi, Mototsugu Shintani and Kozo Ueda
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Mototsugu Shintani: The University of Tokyo

No CARF-F-535, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: We estimate a New Keynesian model incorporating two notable features: bounded rationality and the zero lower bound on the nominal interest rate. Our Bayesian estimation of a fully nonlinear model shows that the model with bounded rationality better fits the US data than its rational expectations counterpart and that both households and firms exhibit a substantial degree of bounded rationality. Moreover, we demonstrate that bounded rationality expands a parameter region in which the model can be estimated and weakens the power of forward guidance.

Pages: 48
Date: 2022-03
New Economics Papers: this item is included in nep-dge, nep-mac and nep-ore
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Related works:
Journal Article: Estimating a Behavioral New Keynesian Model with the Zero Lower Bound (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:cfi:fseres:cf535

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