Dynamic Predictor Selection in a New Keynesian Model with Heterogeneous Expectations
نویسندگان
چکیده
This paper introduces dynamic predictor selection into a New Keynesian model with heterogeneous expectations and examines its implications for monetary policy. We extend Branch and McGough (2006) by endogenizing the fraction of rational versus adaptive agents along the lines of Brock and Hommes (1997). We show that models that are determinate under the assumption of full rationality may possess multiple equilibria and complex dynamics in the presence of heterogeneity. When the degree of heterogeneity is allowed to vary over time as an endogenous state variable there exist complicated dynamic paths that remain bounded around the deterministic steady state of the model. JEL Classifications: E52; E32; D83; D84
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