Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/311271 
Year of Publication: 
2022
Citation: 
[Journal:] Journal of Economic Interaction and Coordination [ISSN:] 1860-7128 [Volume:] 17 [Issue:] 3 [Publisher:] Springer [Place:] Berlin, Heidelberg [Year:] 2022 [Pages:] 849-873
Publisher: 
Springer, Berlin, Heidelberg
Abstract: 
This paper considers various types of forecast heuristics to examine the effects of boundedly rational agents on macroeconomic dynamics. Given the baseline New Keynesian model, we seek to find the expectation formation process that is most suitable in describing economic adjustments over the business cycle. In particular, impulse response analysis is used to compare the performances of the macroeconomic model under bounded rationality and under rational expectations. The results show that the fluctuations in consumer confidence mainly explain the degree of persistence in consumption. We conclude that a model under bounded rationality with a heuristic-induced switching process can qualitatively provide a good fit to the data that is equivalent to a model under rational expectations.
Subjects: 
Bounded rationality
Consumer confidence
Forecast heuristics
Impulse response analysis
New Keynesian model
JEL: 
C53
D83
E12
E21
E32
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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