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Behavioral Macroeconomics and the New Keynesian Model

Author

Listed:
  • Jan-Oliver Menz

    (Department for Economics and Politics, University of Hamburg)

Abstract

The contribution of this paper is twofold. First, a thorough presentation of the state of the art of the New Keynesian Macroeconomic model is provided. A discussion of its empirical caveats follows and some recent extensions of the standard model are evaluated in more detail. Second, a key insight of Behavioral Economics, hyperbolic discounting, is used for the derivation of the IS Curve. It is argued that this approach is more appropriate than the usual praxis of allowing for a rule-of-thumb agent in an otherwise standard optimization framework.

Suggested Citation

  • Jan-Oliver Menz, 2008. "Behavioral Macroeconomics and the New Keynesian Model," Macroeconomics and Finance Series 200804, University of Hamburg, Department of Socioeconomics.
    • Handle: RePEc:hep:macppr:200804
    as

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    File URL: https://www.wiso.uni-hamburg.de/repec/hepdoc/macppr_4_2008.pdf
    File Function: First version, 2008
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    References listed on IDEAS

    as
    1. Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
    2. Michael Woodford, 1998. "Control of the Public Debt: A Requirement for Price Stability?," International Economic Association Series, in: Guillermo Calvo & Mervyn King (ed.), The Debt Burden and its Consequences for Monetary Policy, chapter 5, pages 117-158, Palgrave Macmillan.
    3. Yun, Tack, 1996. "Nominal price rigidity, money supply endogeneity, and business cycles," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 345-370, April.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Shoora B. Paudyal Ph.D., 2014. "Determinants of Inflation in Nepal: An Empirical Assessment," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 26(2), pages 61-82, October.
    2. Lengnick, Matthias & Wohltmann, Hans-Werner, 2016. "Optimal monetary policy in a new Keynesian model with animal spirits and financial markets," Journal of Economic Dynamics and Control, Elsevier, vol. 64(C), pages 148-165.

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    More about this item

    Keywords

    Behavioral Economics; New Keynesian Model; Rule-of-Thumbs; Hyperbolic Discounting;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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