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Myopic Behaviour in Macroeconomic Models: Empirical Evidence from the US

Author

Listed:
  • Stefan Hohberger
  • Adrian Ifrim
  • Beatrice Pataracchia
  • Marco Ratto

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.

Suggested Citation

  • Stefan Hohberger & Adrian Ifrim & Beatrice Pataracchia & Marco Ratto, 2024. "Myopic Behaviour in Macroeconomic Models: Empirical Evidence from the US," CAMA Working Papers 2024-11, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2024-11
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2024-02/11_2024_hohberger_ifrim_pataracchia_ratto.pdf
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    More about this item

    Keywords

    myopic behaviour; DSGE; rational expectation; Bayesian estimation; US business cycle;
    All these keywords.

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E70 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - General

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