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A Behavioral Heterogeneous Agent New Keynesian Model

Discussion Papers 1995, 49 S.

Oliver Pfäuti, Fabian Seyrich


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We propose a behavioral heterogeneous agent New Keynesian model in which monetary policy is amplified through indirect general equilibrium effects, fiscal multipliers can be larger than one and which delivers empirically-realistic intertemporal marginal propensities to consume. Simultaneously, the model resolves the forward guidance puzzle, remains stable at the effective lower bound and determinate under an interest-rate peg. The model is analytically tractable and nests a wide range of existing models as special cases, none of which can produce all the listed features within one model. We extend our model and derive an equivalence result of models featuring bounded rationality and models featuring incomplete information and learning. This extended model generates hump-shaped responses of aggregate variables and a novel behavioral amplification channel that is absent in existing HANK models.

Fabian Seyrich

Ph.D. Student in the Macroeconomics Department

JEL-Classification: E21;E52;E62;E71
Keywords: Behavioral Macroeconomics, Heterogeneous Households, Monetary Policy, Forward Guidance, Fiscal Policy, New Keynesian Puzzles, Determinacy, Lower Bound