A Behavioral Heterogeneous Agent New Keynesian Model

Understanding Persistent ZLB: Theory and Assessment

“…We investigate the ability of departures from the rational expectations assumption in their ability to enhance secular stagnation's empirical fit relative to the expectations trap hypothesis. We consider three dominant alternatives: (i) diagnostic agents à la Bordalo, Gennaioli and Shleifer (2018), (ii) "behavioral" agents à la Gabaix (2020), and (iii) behavioral heterogeneous agents à la Bilbiie (2021) and Pfäuti and Seyrich (2022). The stagnation steady state is unchanged in all three extensions.…”

“…consider Bilbiie (2021)'s tractable heterogeneous agents New Keynesian (THANK) model combined withGabaix (2020) behavioral friction as formally studied byPfäuti and Seyrich (2022). The resulting behavioral-THANK (B-THANK) model analytically captures key ingredients of rich heterogeneity often considered in quantitative models while allowing for local determinacy through cognitive discounting.…”

Cognitive Constraints and Economic Incentives

“…Our survey data provide direct evidence of a demand-side channel, whereby only high-IQ consumers display a basic understanding of what drives their economic incentives to consume, save, and borrow. Cognitive constraints thus limit the effectiveness of policies that target households (Agarwal et al, 2017;Roth and Wohlfart, 2020;Andre et al, 2019;Pfäuti et al, 2023)) above and beyond the role of more commonly studied financial frictions (Foà, Gambacorta, Guiso, and Mistrulli, 2019). 2 Our data allow us to disentangle the role of IQ from that of formal education and other determinants of income, consumption, and wealth, including both observables and elicited personal and aggregate expectations (Agarwal et al, 2009).…”

The Consequences of Falling Behind the Curve: Inflation Shocks and Policy Delays Under Rational and Behavioral Expectations

“…He uses both micro and macro empirical findings to argue for cognitive discounting -the systematic tendency for agents to discount more heavily the future relative to what would occur under rational expectations. Pfäuti and Seyrich (2022) provide evidence of agents' underreaction due to cognitive discounting by estimating the discounting parameter using US consumer survey data. Hirose and Iiboshi (2022) estimate a New Keynesian model that incorporates bounded rationality and the effective lower bound on the nominal interest rate.…”