Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/190328
Authors: 
Jang, Tae-Seok
Sacht, Stephen
Year of Publication: 
2018
Series/Report no.: 
Economics Working Paper 2018-09
Abstract: 
This 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.
Subjects: 
Consumer Expectations
Forecast Heuristics
New-Keynesian Model
Simulated Method of Moments
JEL: 
C53
D83
E12
E21
E32
Document Type: 
Working Paper
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