The role of stickiness, extrapolation and past consensus forecasts in macroeconomic expectations

Hagenhoff, Tim; Lustenhouwer, Joep

doi:10.1016/j.jedc.2023.104638

Journal of Economic Dynamics and Control

2023

DOI: 10.1016/j.jedc.2023.104638

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The role of stickiness, extrapolation and past consensus forecasts in macroeconomic expectations

Tim Hagenhoff

Joep Lustenhouwer

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2024

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Cited by 1 publication

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The Rationality Bias

HAGENHOFF,

LUSTENHOUWER,

TSIONAS

2024

J of Money Credit Banking

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We analyze differences in consumption and wealth in an estimated New Keynesian model with rational and boundedly rational households. Shocks are shown to cause consumption and wealth heterogeneity due to the “rationality bias” of boundedly rational households. This bias can be decomposed into three components, which, for certain specifications of monetary policy, can exactly offset each other. Moreover, a more hawkish response to inflation leads to more volatility in consumption and wealth heterogeneity, which makes it optimal for the central bank to set lower coefficients in the Taylor rule than would have been the case under homogeneous rational expectations.

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The Rationality Bias

HAGENHOFF,

LUSTENHOUWER,

TSIONAS

2024

J of Money Credit Banking

View full text Add to dashboard Cite

show abstract

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The role of stickiness, extrapolation and past consensus forecasts in macroeconomic expectations

Cited by 1 publication

References 49 publications

The Rationality Bias

The Rationality Bias

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