Arbeitspapier
Incorporating Diagnostic Expectations into the New Keynesian Framework
Diagnostic expectations constitute a realistic behavioral model of inference. This paper shows that this approach for expectation formation can be productively integrated into the New Keynesian framework. To this end, we start by offering a first technical treatment of diagnostic expectations in linear macroeconomic models. Diagnostic expectations generate endogenous extrapolation in general equilibrium. We show that diagnostic expectations generate extra amplification in the presence of nominal frictions; a fall in aggregate supply generates a Keynesian recession; fiscal policy is more effective at stimulating the economy; with imperfect information, diagnostic expectations generate delayed overreaction of aggregate variables. Bayesian estimation of a rich medium-scale model delivers estimates of the diagnosticity parameter that is in line with previous studies. Moreover, we find strong empirical evidence in favor of the diagnostic model.
- Sprache
-
Englisch
- Erschienen in
-
Series: Working Paper ; No. 339
- Klassifikation
-
Wirtschaft
General Aggregative Models: Keynes; Keynesian; Post-Keynesian
Business Fluctuations; Cycles
Macro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy‡
- Thema
-
diagnostic expectations
macroeconomics
volatility
linear rational expectations
overshooting
- Ereignis
-
Geistige Schöpfung
- (wer)
-
L'Huillier, Jean-Paul
Singh, Sanjay R.
Yoo, Donghoon
- Ereignis
-
Veröffentlichung
- (wer)
-
University of California, Department of Economics
- (wo)
-
Davis, CA
- (wann)
-
2021
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:41 MEZ
Datenpartner
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Arbeitspapier
Beteiligte
- L'Huillier, Jean-Paul
- Singh, Sanjay R.
- Yoo, Donghoon
- University of California, Department of Economics
Entstanden
- 2021
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