Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/319347 
Year of Publication: 
2024
Citation: 
[Journal:] Journal of Money, Credit and Banking [ISSN:] 1538-4616 [Volume:] 57 [Issue:] 2-3 [Publisher:] Wiley [Place:] Hoboken, NJ [Year:] 2024 [Pages:] 515-547
Publisher: 
Wiley, Hoboken, NJ
Abstract: 
We analyze differences in consumption and wealth in an estimated New Keynesian model with rational and boundedly rational households. Shocks are shown to cause consumption and wealth heterogeneity due to the “rationality bias” of boundedly rational households. This bias can be decomposed into three components, which, for certain specifications of monetary policy, can exactly offset each other. Moreover, a more hawkish response to inflation leads to more volatility in consumption and wealth heterogeneity, which makes it optimal for the central bank to set lower coefficients in the Taylor rule than would have been the case under homogeneous rational expectations.
Subjects: 
heterogeneous expectations
monetary policy
bounded rationality
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article
Document Version: 
Published Version

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