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  4. Monetary policy under behavioral expectations: Theory and experiment
 
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Monetary policy under behavioral expectations: Theory and experiment

Journal
European Economic Review
Type
journal article
Author(s)
Hommes, Cars
Massaro, Domenico
Weber, Matthias  
DOI
https://doi.org/10.1016/j.euroecorev.2019.05.009
Abstract (De)
Expectations play a crucial role in modern macroeconomic models. We consider a New Keynesian framework under a behavioral model of expectation formation and under rational expectations. Contrary to the rational model, the behavioral model predicts that inflation volatility can be lowered if the central bank reacts to the output gap in addition to inflation. We test the opposing theoretical predictions in a learning-to-forecast experiment. In line with the behavioral model, the results support the claim that output stabilization can lead to less volatile inflation.
Language
English
Keywords
Behavioral macroeconomics
Experimental macroeconomics
Heterogeneous expectations
Learning-to-forecast experiment
HSG Classification
contribution to scientific community
HSG Profile Area
SOF - System-wide Risk in the Financial System
Refereed
Yes
Publisher
Elsevier
Volume
118
Number
2019
Start page
193
End page
212
Pages
52
Official URL
https://www.sciencedirect.com/science/article/pii/S0014292119300960?via%3Dihub
URL
https://www.alexandria.unisg.ch/handle/20.500.14171/116600
Subject(s)

business studies

finance

Division(s)

s/bf - Swiss Institut...

SoF - School of Finan...

Contact Email Address
matthias.weber@unisg.ch
Eprints ID
257794
File(s)
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open.access

Name

HMW 2019 EER with online appendix.pdf

Size

1.93 MB

Format

Adobe PDF

Checksum (MD5)

f690ec4e81b07e626e3e4eb17101acb7

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