Behavioural New Keynesian Models
27 Pages Posted: 20 Jun 2018
Date Written: May 31, 2018
This paper provides a bird's eye view of the Behavioural New Keynesian literature. We discuss three key empirical regularities in macroeconomic data which are not accounted for by the standard New Keynesian model, namely, excess kurtosis, stochastic volatility, and departures from rational expectations. We then present a simple Behavioural New Keynesian model that accounts for these empirical regularities in a straightforward manner. We discuss elaborations and extensions of the basic model, and suggest areas for future research.
Keywords: behavioural macroeconomics, heterogeneous expectations, bounded rationality
JEL Classification: E70, E71, E30, E32
Suggested Citation: Suggested Citation