Resource title

Animal spirits and monetary policy

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image for OpenScout resource :: Animal spirits and monetary policy

Resource description

We develop a behavioral macroeconomic model in which agents use simple but biased rules to forecast future output and inflation. This model generates endogenous waves of optimism and pessimism (Animal Spirits ) that are generated by the correlation of biased beliefs. We contrast the dynamics of this model with a stylized DSGE-version of the model and we study the implications for monetary policies. One of our main results is that strict inflation targeting is suboptimal because it gives more scope for waves of optimism and pessimism to emerge thereby destabilizing output and inflation.

Resource author

Paul De Grauwe

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/26463

Resource license

Adapt according to the presented license agreement and reference the original author.