Bounded Rationality, Monetary Policy, and Macroeconomic Stability

Ilabaca, Francisco; Meggiorini, Greta; Milani, Fabio

doi:10.2139/ssrn.3418630

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2023

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Cited by 2 publications

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“…We follow Erceg, Jakab and Lindé (2021) and Ilabaca, Meggiorini and Milani (2020) and add a behavioral element to the model by introducing "cognitive discounting" as in Gabaix (2020).…”

Section: Related Literaturementioning

confidence: 99%

On the Macroeconomic Effects of Reinvestments in Asset Purchase Programmes

2023

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“…We follow Erceg, Jakab and Lindé (2021) and Ilabaca, Meggiorini and Milani (2020) and add a behavioral element to the model by introducing "cognitive discounting" as in Gabaix (2020).…”

Section: Related Literaturementioning

confidence: 99%

On the Macroeconomic Effects of Reinvestments in Asset Purchase Programmes

2023

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“…As a result, macroeconomic fluctuations stabilized in the US. However, subsequent literature pointed out that, on the one hand, the above results relied on the traditional assumption that the expectation is rational (Ilabaca et al, 2020). On the other hand, the macroeconomic instability observed in the 1970s was caused by overconfi dence in output stabilization targets and overpessimistic estimates of output gaps (Orphanides, 2002(Orphanides, , 2003(Orphanides, , 2004.…”

Section: Literature Reviewmentioning

confidence: 99%

Mixed Monetary–Fiscal Policies and Macroeconomic Fluctuations: An Analysis Based on the Dynamic Stochastic General Equilibrium Model

Wang¹,

Li²,

Zhang

2022

China and World Economy

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The existing literature on macroeconomic policy research is mainly concerned with the impact of a single monetary or fi scal policy on China's macroeconomic fl uctuations in a closed economy. However, the effect of a mix of monetary and fi scal policies has been neglected. This paper addresses this issue with an open economy dynamic stochastic general equilibrium model. It applies impulse-response and welfare analyses to explore the stabilization effect of various mixes of monetary and fi scal policies. The results show that the optimal monetary policy and fi scal policy mix varies in different cases. When government spending shocks happen, the aggressive fi scal policy and passive monetary policy would be the best choice. In contrast, for domestic interest rate shocks, foreign interest rate shocks, and foreign consumption shocks, the passive fiscal policy and aggressive monetary policy are more applicable. This article explains China's economic fl uctuations and highlights the importance of mix of monetary and fi scal policies in the face of different shocks.

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Bounded Rationality, Monetary Policy, and Macroeconomic Stability

Cited by 2 publications

References 3 publications

On the Macroeconomic Effects of Reinvestments in Asset Purchase Programmes

On the Macroeconomic Effects of Reinvestments in Asset Purchase Programmes

Mixed Monetary–Fiscal Policies and Macroeconomic Fluctuations: An Analysis Based on the Dynamic Stochastic General Equilibrium Model

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