A Behavioral New Keynesian Model

Xavier GabaixEconomics宏观经济学FT50

American Economic Review2020-07-28Center for Economic and Policy Research; Harvard UniversityDOI

Citations442

Influential43

References160

This paper analyzes how bounded rationality affects monetary and fiscal policy via an empirically relevant enrichment of the New Keynesian model. It models agents’ partial myopia toward distant atypical events using a new microfounded “cognitive discounting” parameter. Compared to the rational model, (i) there is no forward guidance puzzle; (ii) the Taylor principle changes: with passive monetary policy but enough myopia equilibria are determinate and economies stable; (iii) the zero lower bound is much less costly; (iv) price-level targeting is not optimal; (v) fiscal stimulus is effective; (vi) the model is “ neo-Fisherian” in the long run, Keynesian in the short run. (JEL E12, E31, E43, E52, E62, E70)

EconomicsNew Keynesian economicsZero lower boundKeynesian economicsMonetary policyStimulus (psychology)Fiscal policyBounded rationalityDiscountingRational expectationsTaylor ruleMacroeconomic model