Estimation of heuristic switching in behavioral macroeconomic models

34 Pages Posted: 22 Mar 2021 Last revised: 24 Mar 2022

See all articles by Jiri Kukacka

Jiri Kukacka

Charles University - Institute of Economic Studies; Czech Academy of Sciences - Institute of Information Theory and Automation

Stephen Sacht

University of Kiel

Date Written: March 24, 2022

Abstract

This paper addresses the issue of empirical validation of macroeconomic models with behavioral heuristics and a nonlinear switching mechanism. Heuristic switching is an important feature of modeling strategy since it uses simple decision rules of boundedly rational heterogeneous agents. The simulation study shows that the proposed simulated maximum likelihood method identifies well the behavioral effects that stay hidden for standard econometric approaches. In the empirical application, we estimate the structural and behavioral parameters of the US economy. We are especially able to reliably identify the intensity of choice that governs the models' nonlinear dynamics. Our empirical results thus lay the foundation for studying monetary and fiscal policy in a behavioral macroeconomic framework.

Keywords: behavioral heuristics, heuristic switching model, intensity of choice, simulated maximum likelihood

JEL Classification: C53, E12, E32, E71

Suggested Citation

Kukacka, Jiri and Sacht, Stephen, Estimation of heuristic switching in behavioral macroeconomic models (March 24, 2022). Available at SSRN: https://ssrn.com/abstract=3792139 or http://dx.doi.org/10.2139/ssrn.3792139

Jiri Kukacka (Contact Author)

Charles University - Institute of Economic Studies ( email )

Opletalova 26
Prague 1, CZ-11000
Czech Republic

HOME PAGE: http://ies.fsv.cuni.cz/en/staff/kukacka

Czech Academy of Sciences - Institute of Information Theory and Automation ( email )

Pod Vodarenskou vezi 4
Prague 8, CZ-18200
Czech Republic

HOME PAGE: http://www.utia.cas.cz/people/kukacka

Stephen Sacht

University of Kiel ( email )

Olshausenstr. 40
D-24118 Kiel, Schleswig-Holstein 24118
Germany

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