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The (Ir)Relevance of Rule‐of‐Thumb Consumers for U.S. Business Cycle Fluctuations

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  • ALICE ALBONICO
  • GUIDO ASCARI
  • QAZI HAQUE

Abstract

We estimate a medium‐scale model with and without rule‐of‐thumb consumers over the pre‐Volcker and the Great Moderation periods, allowing for indeterminacy. Passive monetary policy and sunspot fluctuations characterize the pre‐Volcker period for both models. In both subsamples, the estimated fraction of rule‐of‐thumb consumers is low, such that the two models are empirically almost equivalent; they yield very similar impulse response functions, variance, and historical decompositions. We conclude that rule‐of‐thumb consumers are irrelevant to explain aggregate U.S. business cycle fluctuations.

Suggested Citation

  • Alice Albonico & Guido Ascari & Qazi Haque, 2024. "The (Ir)Relevance of Rule‐of‐Thumb Consumers for U.S. Business Cycle Fluctuations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(4), pages 769-804, June.
    • Handle: RePEc:wly:jmoncb:v:56:y:2024:i:4:p:769-804
    DOI: 10.1111/jmcb.13057
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