Monetary policy transmission in a model with animal spirits and house price booms and busts

Bofinger, Peter; Debes, Sebastian; Gareis, Johannes; Mayer, Eric

doi:10.1016/j.jedc.2013.08.002

Cited by 19 publications

(12 citation statements)

References 32 publications

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“…As a prominent example, De Grauwe (2011) was one of the first to incorporate this kind of mechanism into the NKM framework in which economic agents are, in fact, either boundedly rational or exhibit perfect rational expectations. This scheme also applies to the expectation of future house prices and consumption of non-durable goods, as presented by Bofinger et al (2013).…”

Section: Contribution To the Related Literaturementioning

confidence: 99%

Forecast heuristics, consumer expectations, and New-Keynesian macroeconomics: A Horse race

Jang

Sacht

2021

Journal of Economic Behavior & Organization

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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. AbstractThis 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.

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Section: Contribution To the Related Literaturementioning

confidence: 99%

Forecast heuristics, consumer expectations, and New-Keynesian macroeconomics: A Horse race

Jang

Sacht

2021

Journal of Economic Behavior & Organization

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“…The theoretical and empirical literature on the relationship between economic policy and the confidence of economic agents is thin. The theoretical explanation for the role of monetary and fiscal policy in the formation of confidence of economic agents is provided by models of De Grauwe (2011), Bofinger et al (2013), Debes et al (2014), andGuimaraes et al (2016), while the effect of shocks in confidence on the design of optimal economic policy has recently been investigated by the ˝expectations-driven liquidity trap˝ models of Mertens and Ravn (2014), Schmidt (2016), and Nakata and Schmidt (2019).…”

Section: Literature Reviewmentioning

confidence: 99%

Economic policy and confidence of economic agents – a causal relationship?

Dajčman

2020

Review of Economic Perspectives

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The purpose of this paper is to study whether innovations in monetary and fiscal policy are a leading indicator of future business and consumer confidence and reverse applying the panel Granger causality analysis to two periods in the history of the euro area: before and after the start of the Great Recession. The results show that Granger causality interaction between the confidence of economic agents and the stance of monetary policy (measured by the shadow rate) is stronger than between the former and the fiscal policy instruments. The European Central Bank (ECB) shadow rate innovations Granger caused business and consumer confidence in both periods, but also indicators of confidence Granger caused the shadow rate. No such feedback could be established between two fiscal policy instruments (government expenditure and revenue growth) and the indicators of confidence. Government spending and revenues Granger caused business confidence in the first subperiod, but not in the second subperiod when the causality reversed. The government revenues Granger caused consumer confidence in the first subperiod, while government expenditures in the second subperiod. Consumer confidence Granger caused government spending in the first subperiod.

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“…Similarly, in Bernanke et al (1999), a shock may lead to an increase in investment and asset prices. Recently, the financial accelerator has been integrated into behavioural models of business cycle dynamics in which heterogeneous agents and credit networks allow for a rich description of the propagation process of adverse shocks (Delli Gatti et al, 2010;Bofinger et al, 2013;De Grauwe and Macchiarelli, 2015).…”

Section: Financial-real Cycles: a Brief Review Of The Theorymentioning

confidence: 99%

Short and medium term financial-real cycles: An empirical assessment

Stockhammer

Jump

Köhler

et al. 2019

Journal of International Money and Finance

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Theories such as Minsky's financial instability hypothesis or New Keynesian financial accelerator models assign a key role to financial factors in business cycle dynamics. We present descriptive statistics and a simple estimation framework to examine the financial-real interaction mechanisms that are at the core of these theories. Specifically, we examine cycle frequencies in seven OECD countries over the period 1970 to 2015, and find that interest rates, business debt, and household debt exhibit cycle lengths of 4-6, 8-11, and 14-26 years, respectively. We then estimate bivariate VAR models which provide evidence for financialreal interaction mechanisms, (i) at high frequencies between interest rates and GDP, and (ii) at low frequencies between business debt and GDP. In contrast, there is no evidence for a cycle mechanism between household debt and GDP.

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Monetary policy transmission in a model with animal spirits and house price booms and busts

Cited by 19 publications

References 32 publications

Forecast heuristics, consumer expectations, and New-Keynesian macroeconomics: A Horse race

Forecast heuristics, consumer expectations, and New-Keynesian macroeconomics: A Horse race

Economic policy and confidence of economic agents – a causal relationship?

Short and medium term financial-real cycles: An empirical assessment

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