Implications of Insights from Behavioral Economics for Macroeconomic Models

33 Pages Posted: 7 May 2013

See all articles by Steinar Holden

Steinar Holden

University of Oslo - Department of Economics; Norges Bank; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: October 31, 2012

Abstract

The last 20 years, the importance of a number of behavioral features has been widely accepted within economics, and they are now regularly included in standard macro models. Where has this development led us? I argue that the insights from behavioral economics have led to important progress in our understanding of macroeconomic phenomena. One of the most important is the effect of fairness considerations on wages and employment relationships. Another important insight is that most or all individuals are affected by various behavioral features, which should be taken into account in the design of saving plans and pension schemes. A third insight is that plausible macro models provide large scope for important effects of sentiments and psychological factors. Future research should follow different routes, like incorporating behavioral features in standard models, improving estimated empirical models, and learning from case studies and historical episodes.

Keywords: behavioral macroeconomics

JEL Classification: E2, E3, D8

Suggested Citation

Holden, Steinar, Implications of Insights from Behavioral Economics for Macroeconomic Models (October 31, 2012). Norges Bank Working Paper 2012/12, Available at SSRN: https://ssrn.com/abstract=2261107 or http://dx.doi.org/10.2139/ssrn.2261107

Steinar Holden (Contact Author)

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway
+47 22 85 51 56 (Phone)
+47 22 85 50 35 (Fax)

HOME PAGE: http://folk.uio.no/~sholden/

Norges Bank ( email )

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Oslo, N-0107
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CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

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