Myopic Behaviour in Macroeconomic Models: Empirical Evidence from the US

Vol: 
11/2024
Author name: 
Hohberger S
Ifrim A
Pataracchia B
Ratto M
Year: 
2024
Month: 
February
Abstract: 

We investigate the empirical implications of myopic behaviour within an estimated medium-scale macroeconomic DSGE model. Our analysis provides a comprehensive and agnostic examination of the macroeconomic outcomes when households’ and firms’ beliefs deviate from rational expectations, as proposed by Gabaix (2020). The estimation on US data proposes a strong preference towards cognitive discounting and suggests: (i) an improvement in overall model fit and forecasting performance, (ii) more stimulative fiscal policy, (iii) demand shocks resembling uncertainty shocks where consumption and investment co-move, and (iv) a diminished efficacy of monetary policy. Notably, our empirical results support the presence of rational price setters.

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