Macroeconomic dynamics under bounded rationality: On the impact of consumers' forecast heuristics

Tae-Seok Jang and Stephen Sacht

No 2018-10, Economics Working Papers from Christian-Albrechts-University of Kiel, Department of Economics

Abstract: In this study, we analyze the macroeconomic dynamics under various shocks in two competing frameworks. Given the baseline New-Keynesian model, we compare the impulse response functions that stem from the hybrid version under rational expectations with the ones obtained in the forward-looking version under bounded rationality. For the latter, we assume heterogeneous agents who may adopt various forecast heuristics. We seek to understand which framework mimics real-world adjustments well and is therefore most suitable to describe economic adjustments over the business cycle.

Keywords: Bounded Rationality; Consumer Expectations; Forecast Heuristics; Impulse Response Functions; New-Keynesian Model (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 and nep-upt
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Journal Article: Macroeconomic dynamics under bounded rationality: on the impact of consumers’ forecast heuristics (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cauewp:201810

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