Animal spirits and monetary policy

Arbeitspapier

We develop a behavioral macroeconomic model in which agents use simple but biased rules to forecast future output and inflation. This model generates endogenous waves of optimism and pessimism (Animal Spirits”) that are generated by the correlation of biased beliefs. We contrast the dynamics of this model with a stylized DSGE-version of the model and we study the implications for monetary policies. One of our main results is that strict inflation targeting is suboptimal because it gives more scope for waves of optimism and pessimism to emerge thereby destabilizing output and inflation.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 2418

Classification and Topics

• Classification: Wirtschaft ; General Aggregative Models: General ; Business Fluctuations; Cycles ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
• Subject: DSGE-model ; imperfect information ; heuristics ; animal spirits ; Konjunkturtheorie ; Dynamisches Gleichgewicht ; Allgemeines Gleichgewicht ; Sunspot ; Geldpolitik ; Inflation Targeting ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): De Grauwe, Paul
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/26463
• Last update: 10.03.2025, 11:43 AM CET