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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, 2020. "The (Ir)Relevance of Rule-of-Thumb Consumers for U.S. Business Cycle Fluctuations," Working Papers 453, University of Milano-Bicocca, Department of Economics, revised Oct 2022.
    • Handle: RePEc:mib:wpaper:453
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    More about this item

    Keywords

    rule-of-thumb consumers; indeterminacy; business cycle fluctuations;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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