Title: A Behavioral Heterogeneous Agent New Keynesian Model

Abstract: “We develop a New Keynesian model with household heterogeneity and bounded rationality in the form of cognitive discounting. The resulting behavioral heterogeneous agent New Keynesian model is consistent with recent empirical facts about the effectiveness and the transmission mechanisms of monetary and fiscal policy: monetary policy is amplified through indirect general equilibrium effects, fiscal multipliers on consumption are positive and the model delivers empirically-realistic intertemporal marginal propensities to consume. Simultaneously, and consistent with the data, the model resolves the forward guidance puzzle and remains stable at the effective lower bound as the model features equilibrium determinacy even under an interest-rate peg. The model is analytically tractable and nests a wide range of existing models as special cases, none of which can produce all the listed features within one model. We further show how the main insights from the tractable model extend to a quantitative version of the model, how the model-implied household expectations can be aligned with recent findings from survey data, and how to derive an equivalence result between heterogeneous-household models with bounded rationality and those featuring incomplete information and learning.”

This MIMA session is via Zoom, information below

Time: 31/05/2022, Tuesday 05:00 PM London

Zoom Link: https://us02web.zoom.us/j/81719302554?pwd=TTFMVUhwSjRobERnK0czRXZFeEpXZz09

Meeting ID: 817 1930 2554 Passcode: MIMA