The rationality bias
We analyze differences in consumption and wealth in an estimated New Keynesian model with rational and boundedly rational households. Shocks are shown to cause consumption and wealth heterogeneity due to the “rationality bias” of boundedly rational households. This bias can be decomposed into three...
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| Main Authors: | , , |
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| Format: | Article (Journal) |
| Language: | English |
| Published: |
15 February 2024
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| Edition: | Early view |
| In: |
Journal of money, credit and banking
Year: 2024, Pages: 1-33 |
| ISSN: | 1538-4616 |
| DOI: | 10.1111/jmcb.13122 |
| Online Access: | Verlag, kostenfrei, Volltext: https://doi.org/10.1111/jmcb.13122 Verlag, kostenfrei, Volltext: https://onlinelibrary.wiley.com/doi/abs/10.1111/jmcb.13122 
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| Author Notes: | Tim Hagenhoff, Joep Lustenhouwer, Mike Tsionas |
| Summary: | We analyze differences in consumption and wealth in an estimated New Keynesian model with rational and boundedly rational households. Shocks are shown to cause consumption and wealth heterogeneity due to the “rationality bias” of boundedly rational households. This bias can be decomposed into three components, which, for certain specifications of monetary policy, can exactly offset each other. Moreover, a more hawkish response to inflation leads to more volatility in consumption and wealth heterogeneity, which makes it optimal for the central bank to set lower coefficients in the Taylor rule than would have been the case under homogeneous rational expectations. |
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| Item Description: | Gesehen am 27.02.2024 |
| Physical Description: | Online Resource |
| ISSN: | 1538-4616 |
| DOI: | 10.1111/jmcb.13122 |