This paper derives a general New Keynesian framework with heterogeneous expectations by explicitly solving the micro-foundations underpinning the model. The resulting reduced form is analytically tractable and encompasses the representative rational agent benchmark as a special case. We specify a setup in which some agents, as a result of cognitive limitations, make mistakes when forecasting future macroeconomic variables and update their beliefs as new information becomes available, while other agents have rational expectations. We then address determinacy issues related to the use of different interest rate rules and derive policy implications for a monetary authority aiming at stabilizing the economy in a dynamic feedback system in which macroeconomic variables and heterogeneous expectations co-evolve over time.

Massaro, D., Heterogeneous expectations in monetary DSGE models, <<JOURNAL OF ECONOMIC DYNAMICS & CONTROL>>, 2013; 37 (3): 680-692. [doi:10.1016/j.jedc.2012.11.001] [http://hdl.handle.net/10807/74607]

Heterogeneous expectations in monetary DSGE models

Massaro, Domenico
Primo
2013

Abstract

This paper derives a general New Keynesian framework with heterogeneous expectations by explicitly solving the micro-foundations underpinning the model. The resulting reduced form is analytically tractable and encompasses the representative rational agent benchmark as a special case. We specify a setup in which some agents, as a result of cognitive limitations, make mistakes when forecasting future macroeconomic variables and update their beliefs as new information becomes available, while other agents have rational expectations. We then address determinacy issues related to the use of different interest rate rules and derive policy implications for a monetary authority aiming at stabilizing the economy in a dynamic feedback system in which macroeconomic variables and heterogeneous expectations co-evolve over time.
Inglese
Massaro, D., Heterogeneous expectations in monetary DSGE models, <<JOURNAL OF ECONOMIC DYNAMICS & CONTROL>>, 2013; 37 (3): 680-692. [doi:10.1016/j.jedc.2012.11.001] [http://hdl.handle.net/10807/74607]
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10807/74607
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