Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/235409 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 9039
Publisher: 
Center for Economic Studies and Ifo Institute (CESifo), Munich
Abstract: 
This paper estimates a New Keynesian model with new and old behavioral elements. Agents in the model exhibit cognitive discounting, or myopia: they discount variables far into the future at higher rates than typically implied in the benchmark model. We investigate the model under different expectational assumptions: rational expectations, subjective expectations with infinite-horizon learning, and subjective expectations with Euler-equation learning. Under rational expectations, the model necessitates of large, possibly unrealistically so, degrees of myopia. The same result persists under infinite-horizon learning, given that agents are still remarkably far-sighted. But, under Euler-equation learning, the model can fit the data with only minimal estimated degrees of myopia. The results indicate that the empirical evidence for cognitive discounting may be sensitive to the modeling of expectations, and they highlight learning as a key behavioral feature to understand macroeconomic fluctuations.
Subjects: 
behavioural macroeconomics
cognitive discounting
myopia
inattention
constant-gain learning
behavioural New Keynesian model
JEL: 
E31
E32
E52
E58
E70
Document Type: 
Working Paper
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