Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/96820
Authors: 
Driscoll, John C.
Holden, Steinar
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 4785
Abstract: 
Over the past 20 years, macroeconomists have incorporated more and more results from behavioral economics into their models. We argue that doing so has helped fixed deficiencies with standard approaches to modeling the economy—for example, the counterfactual absence of inertia in the standard New Keynesian model of economic fluctuations. We survey efforts to use behavioral economics to improve some of the underpinnings of the New Keynesian model—specifically, consumption, the formation of expectations and determination of wages and employment that underlie aggregate supply, and the possibility of multiple equilibria and asset price bubbles. We also discuss more broadly the advantages and disadvantages of using behavioral economics features in macroeconomic models.
Subjects: 
behavioral macroeconomics
New Keynesian model
JEL: 
E20
E30
D80
Document Type: 
Working Paper

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