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  1. Monetary policy rules under bounded rationality
    Author: Dobrew, Michael; Gerke, Rafael; Kienzler, Daniel; Schwemmer, Alexander H.
    Published: [2023]
    Publisher:  Deutsche Bundesbank, Frankfurt am Main

    We study the welfare performance of various simple monetary policy rules under bounded rationality (BR) along the lines of Gabaix (2020) in a New Keynesian model with sticky wages and an effective lower bound (ELB) on interest rates. Policy... more

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    Leibniz-Institut für Wirtschaftsforschung Halle, Bibliothek
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    Location:
    ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
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    We study the welfare performance of various simple monetary policy rules under bounded rationality (BR) along the lines of Gabaix (2020) in a New Keynesian model with sticky wages and an effective lower bound (ELB) on interest rates. Policy strategies with a strong history dependence lose their advantage over inflation targeting in mitigating a demand-driven recessions when interest rates are constrained by the ELB. For supply shocks, inflation t argeting o utperforms h istory-dependent r ules f or a s ufficiently high degree of BR. An exponential average inflation targeting rule, which features a variable degree of history dependence, performs remarkably well, independent of the degree of BR.

     
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    Source: Union catalogues
    Language: English
    Media type: Ebook
    Format: Online
    ISBN: 9783957299499
    Other identifier:
    hdl: 10419/273730
    Series: Discussion paper / Deutsche Bundesbank ; no 2023, 18
    Subjects: Bounded Rationality; Sticky Wages; Monetary Policy Strategies; Zero LowerBound
    Scope: 1 Online-Ressource (circa 76 Seiten), Illustrationen
  2. Make-up strategies with incomplete markets and bounded rationality
    Author: Dobrew, Michael; Gerke, Rafael; Giesen, Sebastian; Röttger, Joost
    Published: [2023]
    Publisher:  Deutsche Bundesbank, Frankfurt am Main

    We study the impact of market incompleteness and bounded rationality on the effectiveness of make-up strategies. To do so, we simulate a heterogeneous-agent New Keynesian (HANK) model with reflective expectations and an occasionally-binding effective... more

    Access:
    Verlag (kostenfrei)
    Resolving-System (kostenfrei)
    Resolving-System (kostenfrei)

    Location:
    Leibniz-Institut für Wirtschaftsforschung Halle, Bibliothek
    Inter-library loan:
    No inter-library loan

    Location:
    ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
    Signature:
    DS 12
    Inter-library loan:
    No inter-library loan

     

    We study the impact of market incompleteness and bounded rationality on the effectiveness of make-up strategies. To do so, we simulate a heterogeneous-agent New Keynesian (HANK) model with reflective expectations and an occasionally-binding effective lower bound (ELB) on the policy rate. Our simulations show that make-up strategies can mitigate the negative consequences of the ELB for inflation and real economic activity. This result holds both for our HANK model as well as a corresponding representative-agent (RANK) model with complete markets, suggesting that market (in)completeness is not important for the effectiveness of make-up strategies. However, the stabilisation benefits of make-up strategies are small when agents’ cognitive ability is consistent with micro-evidence. This result is independent of market (in)completeness, emphasising the importance of rational expectations for make-up strategies. Furthermore, while market incompleteness and bounded rationality complement each other in attenuating the effects of forward guidance in our model, we do not observe such a complementarity with respect to the benefits of make-up strategies.

     
    Export to reference management software   RIS file
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    Source: Union catalogues
    Language: English
    Media type: Ebook
    Format: Online
    ISBN: 9783957299321
    Other identifier:
    hdl: 10419/268488
    Series: Discussion paper / Deutsche Bundesbank ; no 2023, 01
    Subjects: Make-Up Strategies; Incomplete Markets; Bounded Rationality; HANK; Effective Lower Bound; Average Inflation Targeting
    Scope: 1 Online-Ressource (circa 68 Seiten), Illustrationen