Monetary policy under behavioral expectations: Theory and experiment

Domenico Massaro, Cars Hommes, Matthias Weber

Risultato della ricerca: Contributo in rivistaArticolo in rivista

12 Citazioni (Scopus)

Abstract

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.
Lingua originaleEnglish
pagine (da-a)193-212
Numero di pagine20
RivistaEuropean Economic Review
Volume118
DOI
Stato di pubblicazionePubblicato - 2019

Keywords

  • Behavioral macroeconomics
  • Experimental macroeconomics
  • Heterogeneous expectations
  • Learning-to-forecast experiment

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