Short-Term Planning, Monetary Policy, and Macroeconomic Persistence

We estimate a behavioral New Keynesian (NK) model in which households and firms plan over finite horizon. The finite-horizon planning (FHP) outperforms rational expectations versions of the NK as well other models. In FHP model, are forward-looking thinking about events their horizon but backward-looking regarding beyond that point. This gives rise to substantial aggregate persistence without resorting additional features such habit price contracts indexed lagged inflation. (JEL E12, E23, E31, E32, E52)