Monetary policy under behavioral expectations: Theory and experiment
Journal
European Economic Review
Type
journal article
Author(s)
Abstract (De)
Expectations play a crucial role in modern macroeconomic models. We consider a New Keynesian framework under a behavioral model of expectation formation and under rational expectations. Contrary to the rational model, the behavioral model predicts that inflation volatility can be lowered if the central bank reacts to the output gap in addition to inflation. We test the opposing theoretical predictions in a learning-to-forecast experiment. In line with the behavioral model, the results support the claim that output stabilization can lead to less volatile inflation.
Language
English
Keywords
Behavioral macroeconomics
Experimental macroeconomics
Heterogeneous expectations
Learning-to-forecast experiment
HSG Classification
contribution to scientific community
HSG Profile Area
SOF - System-wide Risk in the Financial System
Refereed
Yes
Publisher
Elsevier
Volume
118
Number
2019
Start page
193
End page
212
Pages
52
Subject(s)
Contact Email Address
matthias.weber@unisg.ch
Eprints ID
257794
File(s)![Thumbnail Image]()
Name
HMW 2019 EER with online appendix.pdf
Size
1.93 MB
Format
Adobe PDF
Checksum (MD5)
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