Myopic Behaviour in Macroeconomic Models: Empirical Evidence from the US

Stefan Hohberger, Adrian Ifrim, Beatrice Pataracchia and Marco Ratto

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: We investigate the empirical implications of myopic behaviour within an estimated medium-scale macroeconomic DSGE model. Our analysis provides a comprehensive and agnostic examination of the macroeconomic outcomes when households’ and firms’ beliefs deviate from rational expectations, as proposed by Gabaix (2020). The estimation on US data proposes a strong preference towards cognitive discounting and suggests: (i) an improvement in overall model fit and forecasting performance, (ii) more stimulative fiscal policy, (iii) demand shocks resembling uncertainty shocks where consumption and investment co-move, and (iv) a diminished efficacy of monetary policy. Notably, our empirical results support the presence of rational price setters.

Keywords: myopic behaviour; DSGE; rational expectation; Bayesian estimation; US business cycle (search for similar items in EconPapers)
JEL-codes: E17 E62 E63 E70 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2024-02
New Economics Papers: this item is included in nep-dge
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2024-11

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