【Job talk】Incorporating Diagnostic Expectations into the New Keynesian Framework

  • 研討會日期 : 2023-01-10
  • 時間 : 14:30
  • 主講人 : Professor Donghoon Yoo
  • 地點 : Conference Room B110
  • 主持人 : Professor Shu-Chun Susan Yang
  • 演講者簡介 : Professor Yoo received his Ph.D. in Economics from the University of Rome Tor Vergata in 2015. He is currently an Assistant Professor at Osaka University. His research interests are Macroeconomics, Information Frictions, Behavioral Macroeconomics, and Business Cycles. He is applying for a position of the Institute of Economics, Academia Sinica now.
  • 演講摘要 : Diagnostic expectations constitute a realistic behavioral model of inference. This paper shows that this approach to 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. Our estimate of the diagnosticity parameter is in line with previous studies. Moreover, we find empirical evidence in favor of the diagnostic model. Diagnostic expectations offer new propagation mechanisms to explain fluctuations.