[TUMES] Diagnostic Expectations into the New Keynesian (Oct. 13 16:20~)

Our economics department will receive Professor Yoo from Osaka University for the following seminar.

Professor Yoo will spend 30 minutes before the talk conversing with faculty members and graduate students. So you are encouraged to join early.

Date: October 13, 2022 (Thursday)

Time: 16:20-17:50

Venue: 文科系総合研究棟 第21演習室 (The C-14 Bld.)

Language: English

Donghoon Yoo 氏 (大阪大学)

Title: Incorporating Diagnostic Expectations into the New Keynesian Framework

Abstract: Diagnostic expectations constitute a realistic behavioral model of inference. This paper shows that this approach for expectation formation can be productively integrated into the New Keynesian framework. To this end, we start by offering a technical treatment of diagnostic expectations in linear macroeconomic models. Diagnostic expectations generate endogenous extrapolation in general equilibrium. We show that diagnostic expectations generate extra amplification in the presence of nominal frictions; a fall in aggregate supply generates a Keynesian recession; fiscal policy is more effective at stimulating the economy; with imperfect information, diagnostic expectations generate delayed overreaction of aggregate variables. We perform Bayesian estimation of a rich medium-scale model that incorporates consensus forecast data. Diagnostic expectations outcompete news shocks as an explanation of beliefs-driven business cycles.

See more: https://sites.google.com/view/tohokumoderneconomics/


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