Hyperbolic Discounting and Positive Optimal Inflation

Graham, Liam; Snower, Dennis J.

doi:10.1017/s1365100511000393

Cited by 18 publications

(10 citation statements)

References 44 publications

(74 reference statements)

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Given that the Calvo pricing scheme follows a poisson process, this average duration is generated by a Calvo parameter = 0:75, representing the probability that the nominal wage remains unchanged during the period of analysis. The elasticity of substitution among the di¤erent types of labor is = 5, implying a steady state wage markup of 25%, supported by Graham and Snower (2011) and close to values reported by Ascari (2000), Erceg et al (2000), and Galí et al (2011). The parameter denotes the inverse of the labor supply elasticity in the zero in ‡ation steady state.…”

Section: Calibrationsupporting

confidence: 72%

See 1 more Smart Citation

Envy, guilt, and the Phillips curve

Ahrens

Snower

2014

Journal of Economic Behavior & Organization

Self Cite

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe incorporate inequity aversion into an otherwise standard New Keynesian dynamic equilibrium model with Calvo wage contracts and positive in ‡ation. Workers with relatively low incomes experience envy, whereas those with relatively high incomes experience guilt. The former seek to raise their income, and the latter seek to reduce it. The greater the in‡ation rate, the greater the degree of wage dispersion under Calvo wage contracts, and thus the greater the degree of envy and guilt experienced by the workers. Since the envy e¤ect is stronger than the guilt e¤ect, according to the available empirical evidence, a rise in the in ‡ation rate leads workers to supply more labor over the contract period, generating a signi…cant positive long-run relation between in ‡ation and output (and employment), for low in ‡ation rates. This Phillips curve relation, together with an ine¢ cient zero-in ‡ation steady state, provides a rationale for a positive long-run in ‡ation rate. Given standard calibrations, optimal monetary policy is associated with a long-run in ‡ation rate around 2 percent.JEL classi…cation: D03, E20, E31, E50.

show abstract

Section: Calibrationsupporting

confidence: 72%

“…1 0 See, for example, Roger and Stone (2005) and Carare and Stone (2006). 1 1 An exception is Graham and Snower (2011), showing that optimal in ‡ation is positive in the presence of hyperbolic discounting by households. See also Fagan and Messina (2009) and Coibion et al (2010).…”

Section: The Model Economymentioning

confidence: 99%

Envy, guilt, and the Phillips curve

Ahrens

Snower

2014

Journal of Economic Behavior & Organization

Self Cite

View full text Add to dashboard Cite

show abstract

“…Interestingly, if we follow AS and use the CTB data to structurally estimate discounting-bias parameter values for each individual, we find that 90% of our subjects with no monotonicity violations lie within the interval [0.93, 1.07] (Data Appendix Table 2, Columns 11-13). 5 This is noteworthy because behavioral macro papers sometimes assume representative agents with present bias that lies strictly below our 5 th percentile (see, e.g., (İmrohoroğlu, İmrohoroğlu, and Joines 2003;Graham and Snower 2013;Pérez Kakabadse and Palacios Huerta 2013). As Harris and Laibson (2013) state: "the short-run discount factor… is typically thought to lie between ½ and 1."…”

Section: Oc Perf Oc Precisionmentioning

confidence: 99%

The Quest for Parsimony in Behavioral Economics: New Methods and Evidence on Three Fronts

2017

View full text Add to dashboard Cite

Behavioral economics identifies myriad deviations from classical economic assumptions about consumer decision-making, but lacks evidence on how its diverse phenomena fit together and whether they are amenable to modeling as low-dimensional constructs. We pursue such parsimony on three fronts, with success on two and instructive failure on the third. Elicitation parsimony reduces impediments to data collection by streamlining standard methods for directly measuring a person's behavioral tendencies. We do so for 17 potentially behavioral factors per individual in a large, nationally representative sample, and several sets of results indicate that our streamlined elicitations yield low-cost, high-quality data. Behavioral sufficient statistic parsimony aggregates information across behavioral factors, within-person, to create two new lowerdimensional, consumer-level measures of behavioral tendencies. These statistics usefully capture cross-sectional variation in behavioral tendencies, strongly and negatively correlating with a rich index of financial condition even after (over-)controlling for demographics, classical risk attitudes and patience, cognitive skills including financial literacy, and survey effort. Our quest for common factor parsimony largely fails: within-consumer correlations between behavioral factors tend to be low, and the common factor contributing to all 17 behavioral factors withinindividual is weakly identified and does not help explain outcomes conditional on the other covariates. Altogether our results provide many new insights into behavioral factors: their distributions, interrelationships , distinctions from classical factors, and links to outcomes. Our findings also support the two leading approaches to modeling behavioral factors-considering them in relative isolation, and summarizing them with reduced-form sufficient statistics-and provide data and methods for honing both approaches.

show abstract

“…Interestingly, if we follow AS and use the CTB data to structurally estimate discounting-bias parameter values for each individual, we find that 90% of our subjects with no monotonicity violations lie within the interval [0.93, 1.07] (Data Appendix Table 1, Columns 11-13). 5 This is noteworthy because behavioral macro papers sometimes assume representative agents with present bias that lies strictly below our 5 th percentile (see, e.g., (İmrohoroğlu, İmrohoroğlu, and Joines 2003;Graham and Snower 2013;Pérez Kakabadse and Palacios Huerta 2013). As Harris and Laibson (2013) state: "the short-run discount factor… is typically thought to lie between ½ and 1."…”

Section: A Present-or Future-biased Discounting (Money)mentioning

confidence: 99%