Ricerc@Sapienza

Our paper estimates and compares behavioral New-Keynesian DSGE models derived under two alternative ways to introduce heterogeneous expectations. We assume that agents may be either short-sighted or long-horizon forecasters. The difference does not matter when agents have rational expectations, but it does when a fraction of them form beliefs about the future according to some heuristics. Bayesian estimations show that a behavioral model based on short forecasters fits the data better than one based on long forecasters.

By using Bayesian techniques, our paper investigates behavioral New-Keynesian DSGE models derived under two parsimonious alternatives to introduce heterogeneous expectations: the Euler equation and the anticipated-utility approach. First, we explore the relation between the expectation formation processes and the model determinacy for a broad range of parameterizations by using global sensitivity analysis and Monte Carlo filtering. Second, we perform model comparison to assess how much the two alternatives are consistent with macro and expectation survey data.

This paper builds a stylized simple sticky-price New Keynesian model where agents' beliefs are not homogeneous. We assume that agents choose optimal plans while considering forecasts of macroeconomic conditions over an infinite horizon. A fraction of them (boundedly rational agents) use heuristics to forecast macroeconomic variables over an infinite horizon. In our framework, we study optimal policies consistent with a second-order approximation of the policy objective from the consumers' utility function, assuming that the steady state is not distorted.