Forecast heuristics, consumer expectations, and new-Keynesian macroeconomics: A horse race

Tae-Seok Jang and Stephen Sacht

No 2018-09, Economics Working Papers from Christian-Albrechts-University of Kiel, Department of Economics

Abstract: This study extends the hybrid version of the baseline New-Keynesian model with heterogeneous agents who may adopt various forecast heuristics. With a focus on consumer expectations, we identify the most appropriate pairs of forecast heuristics that can lead to an equivalent fit to the data compared with the model specification under rational expectations. The competing specifications are estimated using the simulated method of moments. Our empirical results suggest that expectations under bounded rationality in the United States are grounded on consumers' emotional state, while for the Euro Area they are technical in nature. This observation questions the need for a hybrid model specification under rational expectations.

Keywords: Consumer Expectations; Forecast Heuristics; New-Keynesian Model; Simulated Method of Moments (search for similar items in EconPapers)
JEL-codes: C53 D83 E12 E21 E32 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-cbe, nep-mac, nep-ore and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Forecast heuristics, consumer expectations, and New-Keynesian macroeconomics: A Horse race (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cauewp:201809

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