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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: Richard Jaimes and José-Elías Gallegos

No 18560, Vniversitas Económica from Universidad Javeriana - Bogotá

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)
Pages: 41
Date: 2020-12-17
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (1)

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