> endobj xref 88 58 0000000016 00000 n Behavioural and Post-Keynesian Foundations for a new Macroeconomics Steven Hail A thesis submitted to Flinders University in fulfilment of the requirements for the degree of Doctor of Philosophy Flinders Business School March 2016 . Behavioral Foundations for Keynesian Macroeconomics: The Consumption Function 0000010819 00000 n (2009) carried out important econometric analysis documenting the non-normality of the distribution of output gaps and growth rates of GDP. While sharing many theoretical and psychologically based tools with behavioural macroeconomics, our contribution does not have the aim of proposing more empirically robust foundations for macroeconomics or for the business cycle. However, when we go too far with structural reforms, we go beyond the minimum point on the line. As we increase the degree of flexibility, we move down along the downward sloping segment of the line. Technically, this means that the distribution of the output gap and output growth is non-Gaussian and exhibits fat tails. In the 1976 book The Economic Approach to Human Behavior, the economist Gary S. Becker famously outlined a number of ideas known as the pillars of so-called ‘rational c… 2014, Cacciatore et al. Evans, G and S Honkapohja (2001), Learning and Expectations in Macroeconomics, Princeton University Press. An important feature of this dynamics of animal spirits is that the movements of the output gap are characterised by periods of tranquility alternating in an unpredictable way with periods of intense movements reflecting booms and busts. From that point on, we obtain a negatively sloped relationship (i.e. 0000012341 00000 n Figure 2 The optimal level of flexibility. 0000003307 00000 n This has to do with the fact that in more flexible economies prices and wages have a greater role to play in adjustments to emerging disequilibria. Gabaix, X (2014), “A sparsity-based model of bounded rationality”, The Quarterly Journal of Economics, 1661–1710. Clearly, this must be located to the left of the minimum point of the relationship. This feature of the higher moments of the output gap is generated endogenously in the model. Gigerenzer, G and R Selten (2002), Bounded rationality, Cambridge: MIT Press. Contrary to mainstream top-down models in which agents are capable of understanding the whole picture and use this superior information to determine their optimal plans, the models used in this book are bottom-up models in which all agents experience cognitive limitations. Application of the models highlights how the trade-off between output and inflation is moderated by the flexibility of the economy. 0000001889 00000 n "These Lectures on Behavioral Macroeconomics remind us that De Grauwe is also an excellent macroeconomic theorist and a wonderful narrator. 0000003600 00000 n 0000012210 00000 n In the spirit of Keynes’ General Theory, behavioral macroeconomists are rebuilding the microfoundations that were sacked by the New Classical economics. Research-based policy analysis and commentary from leading economists, Behavioural economics is also useful in macroeconomics, Paul De Grauwe, Yuemei Ji 01 November 2017. 0000004230 00000 n This column uses concepts from behavioural economics to develop macroeconomic models with endogenous business cycle fluctuations. �3ȥ�(������g��a��g�� These reforms lead to a lowering of mark ups in the goods and labour markets and move the economy closer to perfect competition. 2005, Tesfatsion and Judd 2006, Colander et al. - Martin Dufwenberg, University of Arizona "Sanjit Dhami's Foundations of Behavioral Economic Analysis is a major and most impressive achievement. 0000010271 00000 n Macroeconomic studies emphasize decisions with a time dimension, such as various forms of investments. This adaptive learning assumption introduced in an otherwise standard New Keynesian macroeconomic model produces endogenous waves of optimism and pessimism (animal spirits) that drive the business cycle in a self-fulfilling way. Figure 1 Trade-off between output and inflation. The horizontal axis shows the standard deviations of output; the vertical axis the standard deviations of inflation. Behavioural economics is seeing increased acceptance as a legitimate way of thinking about economic issues. 0000003490 00000 n 0000011496 00000 n We obtain a non-linear relationship. From the liberal arts perspective, this includes the fields of psychology, sociology, anthropology, economics and behavioral economics. We have used our behavioural macroeconomic model to analyse different macroeconomic issues. Why do people buy the stuff they buy? 0000005111 00000 n That is, optimism (pessimism) leads to an increase (decline) in output, and the increase (decline) in output in term intensifies optimism (pessimism) (De Grauwe 2012, De Grauwe and Ji 2017a). 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The foundation of behavioral finance is an area based on an interdisciplinary approach including scholars from the social sciences and business schools. wages and prices do not react to changes in the output gap). A DSGE model-based analysis of the short-term effects of structural reforms in labour and product markets”, OECD, Economics Department Working paper no 948. One good example is the recent effort to integrate the financial sector in DSGE models to explain the business cycle. 0000002729 00000 n Behavioral economics is the study of why people make decisions about money, including how they spend, invest, and save. In this case, the trade-off is negatively sloped. We conclude that the degree of flexibility has profound effects on the trade-offs central banks encounter in their attempts to stabilise the economy. This is provided under the Russell Sage Foundation. In the spirit of Keynes' General Theory, behavioral macroeconomists 0000009801 00000 n We show the result for a given c1 = 1.5 (the inflation parameter) and c2 = 0.5 (the output parameter) in Figure 2. Farmer, R, J Doyne and D Foley (2009), “The economy needs agent-based modelling”, Nature 460: 685-686. The seven principles: Other people’s behaviour matters: people do many things by observing others and copying; people are encouraged to continue to do things when they feel other people approve of their b Such an explanation is not satisfactory, as it shifts the burden of explaining the business cycle to outside forces. However, the results of these models depend on the assumption that the shocks are serially-correlated. 0000001826 00000 n 0000003424 00000 n These deviations from rational calculation are introduced as “non-standard” (the standard being neoclassical economics) or reflections of “bias”. Therefore, during recent decades macroeconomists have attempted to combine microeconomic models of household and business behavior to derive the relationships between macroeconomic variables. 0000001684 00000 n One of the most important is the effect of fairness considerations on wages and employment relationships. The latter is measured by the sensitivity of inflation to the output gap in the New Keynesian Philips curve (called b2). As a result, one can argue that standard DSGE models do not have an endogenous business cycle theory. The economics of insurance and its borders with general finance, Maturity mismatch stretching: Banking has taken a wrong turn. We are, of course, not alone in exploring different tracks of macroeconomic modelling. 2011, Gabaix 2014, Westerhoff and Franke 2012, Hommes 2016, Hommes and Lustenhouwer 2016, Muellbauer 2017; see also the recent criticism of Blanchard 2017 and the chapters in Gürkaynak and Tille 2017). The major question we analyse is how structural reforms affect the choices monetary authorities face. Tesfatsion, L and K L Judd (2006), Handbook of Computational Economics Volume 2: Agent-Based Computational Economics, Elsevier. Model . Topics:  2008, Farmer 2006, Farmer and Foley 2009, Gatti et al. Cacciatore, M, R Duval and G Fiori (2012) “Short-term gain or pain? 0000002948 00000 n Colander, D, P Howitt, A Kirman, A Leijonhufvud and P Mehrling (2008), "Beyond DSGE models: Toward an empirically based macroeconomics", American Economic Review 98(2): 236-40. Chinese Food Quotes For Instagram, Physics Conference Hawaii 2020, Gillespie County Permits, Bay Leaves Tree, South Kitchen Athens Reservations, Brs Neuroanatomy Latest Edition, Braun And Clarke Thematic Analysis Book, "/> > endobj xref 88 58 0000000016 00000 n Behavioural and Post-Keynesian Foundations for a new Macroeconomics Steven Hail A thesis submitted to Flinders University in fulfilment of the requirements for the degree of Doctor of Philosophy Flinders Business School March 2016 . Behavioral Foundations for Keynesian Macroeconomics: The Consumption Function 0000010819 00000 n (2009) carried out important econometric analysis documenting the non-normality of the distribution of output gaps and growth rates of GDP. While sharing many theoretical and psychologically based tools with behavioural macroeconomics, our contribution does not have the aim of proposing more empirically robust foundations for macroeconomics or for the business cycle. However, when we go too far with structural reforms, we go beyond the minimum point on the line. As we increase the degree of flexibility, we move down along the downward sloping segment of the line. Technically, this means that the distribution of the output gap and output growth is non-Gaussian and exhibits fat tails. In the 1976 book The Economic Approach to Human Behavior, the economist Gary S. Becker famously outlined a number of ideas known as the pillars of so-called ‘rational c… 2014, Cacciatore et al. Evans, G and S Honkapohja (2001), Learning and Expectations in Macroeconomics, Princeton University Press. An important feature of this dynamics of animal spirits is that the movements of the output gap are characterised by periods of tranquility alternating in an unpredictable way with periods of intense movements reflecting booms and busts. From that point on, we obtain a negatively sloped relationship (i.e. 0000012341 00000 n Figure 2 The optimal level of flexibility. 0000003307 00000 n This has to do with the fact that in more flexible economies prices and wages have a greater role to play in adjustments to emerging disequilibria. Gabaix, X (2014), “A sparsity-based model of bounded rationality”, The Quarterly Journal of Economics, 1661–1710. Clearly, this must be located to the left of the minimum point of the relationship. This feature of the higher moments of the output gap is generated endogenously in the model. Gigerenzer, G and R Selten (2002), Bounded rationality, Cambridge: MIT Press. Contrary to mainstream top-down models in which agents are capable of understanding the whole picture and use this superior information to determine their optimal plans, the models used in this book are bottom-up models in which all agents experience cognitive limitations. Application of the models highlights how the trade-off between output and inflation is moderated by the flexibility of the economy. 0000001889 00000 n "These Lectures on Behavioral Macroeconomics remind us that De Grauwe is also an excellent macroeconomic theorist and a wonderful narrator. 0000003600 00000 n 0000012210 00000 n In the spirit of Keynes’ General Theory, behavioral macroeconomists are rebuilding the microfoundations that were sacked by the New Classical economics. Research-based policy analysis and commentary from leading economists, Behavioural economics is also useful in macroeconomics, Paul De Grauwe, Yuemei Ji 01 November 2017. 0000004230 00000 n This column uses concepts from behavioural economics to develop macroeconomic models with endogenous business cycle fluctuations. �3ȥ�(������g��a��g�� These reforms lead to a lowering of mark ups in the goods and labour markets and move the economy closer to perfect competition. 2005, Tesfatsion and Judd 2006, Colander et al. - Martin Dufwenberg, University of Arizona "Sanjit Dhami's Foundations of Behavioral Economic Analysis is a major and most impressive achievement. 0000010271 00000 n Macroeconomic studies emphasize decisions with a time dimension, such as various forms of investments. This adaptive learning assumption introduced in an otherwise standard New Keynesian macroeconomic model produces endogenous waves of optimism and pessimism (animal spirits) that drive the business cycle in a self-fulfilling way. Figure 1 Trade-off between output and inflation. The horizontal axis shows the standard deviations of output; the vertical axis the standard deviations of inflation. Behavioural economics is seeing increased acceptance as a legitimate way of thinking about economic issues. 0000003490 00000 n 0000011496 00000 n We obtain a non-linear relationship. From the liberal arts perspective, this includes the fields of psychology, sociology, anthropology, economics and behavioral economics. We have used our behavioural macroeconomic model to analyse different macroeconomic issues. 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The foundation of behavioral finance is an area based on an interdisciplinary approach including scholars from the social sciences and business schools. wages and prices do not react to changes in the output gap). A DSGE model-based analysis of the short-term effects of structural reforms in labour and product markets”, OECD, Economics Department Working paper no 948. One good example is the recent effort to integrate the financial sector in DSGE models to explain the business cycle. 0000002729 00000 n Behavioral economics is the study of why people make decisions about money, including how they spend, invest, and save. In this case, the trade-off is negatively sloped. We conclude that the degree of flexibility has profound effects on the trade-offs central banks encounter in their attempts to stabilise the economy. This is provided under the Russell Sage Foundation. In the spirit of Keynes' General Theory, behavioral macroeconomists 0000009801 00000 n We show the result for a given c1 = 1.5 (the inflation parameter) and c2 = 0.5 (the output parameter) in Figure 2. Farmer, R, J Doyne and D Foley (2009), “The economy needs agent-based modelling”, Nature 460: 685-686. The seven principles: Other people’s behaviour matters: people do many things by observing others and copying; people are encouraged to continue to do things when they feel other people approve of their b Such an explanation is not satisfactory, as it shifts the burden of explaining the business cycle to outside forces. However, the results of these models depend on the assumption that the shocks are serially-correlated. 0000001826 00000 n 0000003424 00000 n These deviations from rational calculation are introduced as “non-standard” (the standard being neoclassical economics) or reflections of “bias”. Therefore, during recent decades macroeconomists have attempted to combine microeconomic models of household and business behavior to derive the relationships between macroeconomic variables. 0000001684 00000 n One of the most important is the effect of fairness considerations on wages and employment relationships. The latter is measured by the sensitivity of inflation to the output gap in the New Keynesian Philips curve (called b2). As a result, one can argue that standard DSGE models do not have an endogenous business cycle theory. The economics of insurance and its borders with general finance, Maturity mismatch stretching: Banking has taken a wrong turn. We are, of course, not alone in exploring different tracks of macroeconomic modelling. 2011, Gabaix 2014, Westerhoff and Franke 2012, Hommes 2016, Hommes and Lustenhouwer 2016, Muellbauer 2017; see also the recent criticism of Blanchard 2017 and the chapters in Gürkaynak and Tille 2017). The major question we analyse is how structural reforms affect the choices monetary authorities face. Tesfatsion, L and K L Judd (2006), Handbook of Computational Economics Volume 2: Agent-Based Computational Economics, Elsevier. Model . Topics:  2008, Farmer 2006, Farmer and Foley 2009, Gatti et al. Cacciatore, M, R Duval and G Fiori (2012) “Short-term gain or pain? 0000002948 00000 n Colander, D, P Howitt, A Kirman, A Leijonhufvud and P Mehrling (2008), "Beyond DSGE models: Toward an empirically based macroeconomics", American Economic Review 98(2): 236-40. Chinese Food Quotes For Instagram, Physics Conference Hawaii 2020, Gillespie County Permits, Bay Leaves Tree, South Kitchen Athens Reservations, Brs Neuroanatomy Latest Edition, Braun And Clarke Thematic Analysis Book, " /> > endobj xref 88 58 0000000016 00000 n Behavioural and Post-Keynesian Foundations for a new Macroeconomics Steven Hail A thesis submitted to Flinders University in fulfilment of the requirements for the degree of Doctor of Philosophy Flinders Business School March 2016 . Behavioral Foundations for Keynesian Macroeconomics: The Consumption Function 0000010819 00000 n (2009) carried out important econometric analysis documenting the non-normality of the distribution of output gaps and growth rates of GDP. While sharing many theoretical and psychologically based tools with behavioural macroeconomics, our contribution does not have the aim of proposing more empirically robust foundations for macroeconomics or for the business cycle. However, when we go too far with structural reforms, we go beyond the minimum point on the line. As we increase the degree of flexibility, we move down along the downward sloping segment of the line. Technically, this means that the distribution of the output gap and output growth is non-Gaussian and exhibits fat tails. In the 1976 book The Economic Approach to Human Behavior, the economist Gary S. Becker famously outlined a number of ideas known as the pillars of so-called ‘rational c… 2014, Cacciatore et al. Evans, G and S Honkapohja (2001), Learning and Expectations in Macroeconomics, Princeton University Press. An important feature of this dynamics of animal spirits is that the movements of the output gap are characterised by periods of tranquility alternating in an unpredictable way with periods of intense movements reflecting booms and busts. 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Application of the models highlights how the trade-off between output and inflation is moderated by the flexibility of the economy. 0000001889 00000 n "These Lectures on Behavioral Macroeconomics remind us that De Grauwe is also an excellent macroeconomic theorist and a wonderful narrator. 0000003600 00000 n 0000012210 00000 n In the spirit of Keynes’ General Theory, behavioral macroeconomists are rebuilding the microfoundations that were sacked by the New Classical economics. Research-based policy analysis and commentary from leading economists, Behavioural economics is also useful in macroeconomics, Paul De Grauwe, Yuemei Ji 01 November 2017. 0000004230 00000 n This column uses concepts from behavioural economics to develop macroeconomic models with endogenous business cycle fluctuations. �3ȥ�(������g��a��g�� These reforms lead to a lowering of mark ups in the goods and labour markets and move the economy closer to perfect competition. 2005, Tesfatsion and Judd 2006, Colander et al. - Martin Dufwenberg, University of Arizona "Sanjit Dhami's Foundations of Behavioral Economic Analysis is a major and most impressive achievement. 0000010271 00000 n Macroeconomic studies emphasize decisions with a time dimension, such as various forms of investments. This adaptive learning assumption introduced in an otherwise standard New Keynesian macroeconomic model produces endogenous waves of optimism and pessimism (animal spirits) that drive the business cycle in a self-fulfilling way. Figure 1 Trade-off between output and inflation. The horizontal axis shows the standard deviations of output; the vertical axis the standard deviations of inflation. Behavioural economics is seeing increased acceptance as a legitimate way of thinking about economic issues. 0000003490 00000 n 0000011496 00000 n We obtain a non-linear relationship. From the liberal arts perspective, this includes the fields of psychology, sociology, anthropology, economics and behavioral economics. We have used our behavioural macroeconomic model to analyse different macroeconomic issues. Why do people buy the stuff they buy? 0000005111 00000 n That is, optimism (pessimism) leads to an increase (decline) in output, and the increase (decline) in output in term intensifies optimism (pessimism) (De Grauwe 2012, De Grauwe and Ji 2017a). In classical economics, most models assume that consumers behave rationally. 0000009677 00000 n This may lead to the conclusion that flexibility is always welfare improving – but that is not the case. 0000009013 00000 n 0000003773 00000 n F��7��a�ަ�O!r�DL]��N(�K(�HM���F���ׄ�E10�V�N" (q�G�'P�RM\���tS�#Q� ��DT˘��&� xA�jJ�����a8�$���ɉY+O���N��L���#(/�R�ش���gܒ�B3@�]3Lí+�yާ�F3�껁o��W��*��ط�sN`͡ާ,���X�]4�x�E��b�7\�HY���Q_;d� endstream endobj 145 0 obj 420 endobj 92 0 obj << /Type /Page /Parent 81 0 R /Resources 114 0 R /Contents [ 121 0 R 123 0 R 125 0 R 127 0 R 129 0 R 135 0 R 137 0 R 143 0 R ] /MediaBox [ 0 0 506 723 ] /CropBox [ 0 0 506 723 ] /Rotate 0 >> endobj 93 0 obj << /Count 10 /Type /Outlines /First 94 0 R /Last 94 0 R >> endobj 94 0 obj << /Title (��n�پ��\\8v�$��~�!���2M����:����҇\n�[y$�,F�) /Parent 93 0 R /A 95 0 R /First 96 0 R /Last 97 0 R /Count 9 >> endobj 95 0 obj << /S /GoTo /D [ 92 0 R /XYZ 0 656 null ] >> endobj 96 0 obj << /Title (�j_�zY5�ml�GJm�П��r��ը) /Parent 94 0 R /A 113 0 R /Next 110 0 R >> endobj 97 0 obj << /Title (��>�ꓪ�) /Parent 94 0 R /Prev 98 0 R /A 99 0 R >> endobj 98 0 obj << /Title (!���=B��@�4��hp) /Parent 94 0 R /Prev 100 0 R /Next 97 0 R /A 101 0 R >> endobj 99 0 obj << /S /GoTo /D [ 49 0 R /XYZ 0 367 null ] >> endobj 100 0 obj << /Title (��:좊�ܚè����U��ZZ�Y��) /Parent 94 0 R /Prev 102 0 R /Next 98 0 R /A 103 0 R >> endobj 101 0 obj << /S /GoTo /D [ 46 0 R /XYZ 0 301 null ] >> endobj 102 0 obj << /Title (n���o��Q�q�9) /Parent 94 0 R /Prev 104 0 R /Next 100 0 R /A 105 0 R >> endobj 103 0 obj << /S /GoTo /D [ 43 0 R /XYZ 0 653 null ] >> endobj 104 0 obj << /Title (����H���+��R) /Parent 94 0 R /Prev 106 0 R /Next 102 0 R /A 107 0 R >> endobj 105 0 obj << /S /GoTo /D [ 37 0 R /XYZ 0 554 null ] >> endobj 106 0 obj << /Title (��r���E��k�'YAɌO$��"� ��f*���*Z�;) /Parent 94 0 R /Prev 108 0 R /Next 104 0 R /A 109 0 R >> endobj 107 0 obj << /S /GoTo /D [ 31 0 R /XYZ 0 543 null ] >> endobj 108 0 obj << /Title (mzJ˶��e�{7"?-&0�׎�v^Qda���AD��a) /Parent 94 0 R /Prev 110 0 R /Next 106 0 R /A 111 0 R >> endobj 109 0 obj << /S /GoTo /D [ 19 0 R /XYZ 0 653 null ] >> endobj 110 0 obj << /Title (C��H�a�%�^h���`G}t�� 㑈��M) /Parent 94 0 R /Prev 96 0 R /Next 108 0 R /A 112 0 R >> endobj 111 0 obj << /S /GoTo /D [ 13 0 R /XYZ 0 444 null ] >> endobj 112 0 obj << /S /GoTo /D [ 7 0 R /XYZ 0 510 null ] >> endobj 113 0 obj << /S /GoTo /D [ 4 0 R /XYZ 0 499 null ] >> endobj 114 0 obj << /ProcSet [ /PDF /Text ] /Font << /F1 119 0 R /F5 115 0 R /F6 116 0 R /F7 133 0 R >> /ExtGState << /GS1 139 0 R >> >> endobj 115 0 obj << /Type /Font /Subtype /Type1 /Encoding 117 0 R /BaseFont /Times-Roman >> endobj 116 0 obj << /Type /Font /Subtype /Type1 /Encoding /MacRomanEncoding /BaseFont /Times-Italic >> endobj 117 0 obj << /Type /Encoding /BaseEncoding /WinAnsiEncoding /Differences [ 17 /Zcaron /zcaron /Lslash /lslash /minus /fraction /breve /caron /dotlessi /dotaccent /hungarumlaut /ogonek /ring /fi /fl ] >> endobj 118 0 obj << /Type /FontDescriptor /Ascent 714 /CapHeight 714 /Descent -198 /Flags 32 /FontBBox [ -166 -214 1076 952 ] /FontName /BAGDCN+HelveticaNeue-Roman /ItalicAngle 0 /StemV 85 /XHeight 517 /CharSet (4���[3�Ƽ��m�΅�O�ب��t�}�) /FontFile3 140 0 R >> endobj 119 0 obj << /Type /Font /Subtype /Type1 /FirstChar 32 /LastChar 181 /Widths [ 278 259 426 556 556 1000 630 278 259 259 352 600 278 389 278 333 556 556 556 556 556 556 556 556 556 556 278 278 600 600 600 556 800 648 685 722 704 611 574 759 722 259 519 667 556 871 722 760 648 760 685 648 574 722 611 926 611 648 611 259 333 259 600 500 222 537 593 537 593 537 296 574 556 222 222 519 222 853 556 574 593 593 333 500 315 556 500 758 518 500 480 333 222 333 600 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 556 556 278 278 278 278 278 800 278 278 278 278 278 278 278 600 278 278 278 556 ] /Encoding /WinAnsiEncoding /BaseFont /BAGDCN+HelveticaNeue-Roman /FontDescriptor 118 0 R >> endobj 120 0 obj 606 endobj 121 0 obj << /Filter /FlateDecode /Length 120 0 R >> stream Read the latest chapters of Handbook of Behavioral Economics: Applications and Foundations 1 at ScienceDirect.com, Elsevier’s leading platform of peer-reviewed scholarly literature further increases in flexibility lead to less volatility of output at the expense of increasing inflation volatility). 0000004481 00000 n 0000008991 00000 n Executive Summary This thesis strives to enrich macroeconomic theories with behavioural components. relates to the decision-making process behind an economic outcome of individuals and institutions 0000004416 00000 n We have chosen to do so by assuming that agents experience cognitive limitations preventing them from having rational expectations. 0000004034 00000 n Beyond the minimum point further increases in flexibility lead to lower output volatility at the expense of higher inflation volatility. The foundation of behavioral finance is an area based on an interdisciplinary approach including scholars from the social sciences and business schools. wages and prices do not react to changes in the output gap). A DSGE model-based analysis of the short-term effects of structural reforms in labour and product markets”, OECD, Economics Department Working paper no 948. One good example is the recent effort to integrate the financial sector in DSGE models to explain the business cycle. 0000002729 00000 n Behavioral economics is the study of why people make decisions about money, including how they spend, invest, and save. In this case, the trade-off is negatively sloped. We conclude that the degree of flexibility has profound effects on the trade-offs central banks encounter in their attempts to stabilise the economy. This is provided under the Russell Sage Foundation. In the spirit of Keynes' General Theory, behavioral macroeconomists 0000009801 00000 n We show the result for a given c1 = 1.5 (the inflation parameter) and c2 = 0.5 (the output parameter) in Figure 2. Farmer, R, J Doyne and D Foley (2009), “The economy needs agent-based modelling”, Nature 460: 685-686. The seven principles: Other people’s behaviour matters: people do many things by observing others and copying; people are encouraged to continue to do things when they feel other people approve of their b Such an explanation is not satisfactory, as it shifts the burden of explaining the business cycle to outside forces. However, the results of these models depend on the assumption that the shocks are serially-correlated. 0000001826 00000 n 0000003424 00000 n These deviations from rational calculation are introduced as “non-standard” (the standard being neoclassical economics) or reflections of “bias”. Therefore, during recent decades macroeconomists have attempted to combine microeconomic models of household and business behavior to derive the relationships between macroeconomic variables. 0000001684 00000 n One of the most important is the effect of fairness considerations on wages and employment relationships. The latter is measured by the sensitivity of inflation to the output gap in the New Keynesian Philips curve (called b2). As a result, one can argue that standard DSGE models do not have an endogenous business cycle theory. The economics of insurance and its borders with general finance, Maturity mismatch stretching: Banking has taken a wrong turn. We are, of course, not alone in exploring different tracks of macroeconomic modelling. 2011, Gabaix 2014, Westerhoff and Franke 2012, Hommes 2016, Hommes and Lustenhouwer 2016, Muellbauer 2017; see also the recent criticism of Blanchard 2017 and the chapters in Gürkaynak and Tille 2017). The major question we analyse is how structural reforms affect the choices monetary authorities face. Tesfatsion, L and K L Judd (2006), Handbook of Computational Economics Volume 2: Agent-Based Computational Economics, Elsevier. Model . Topics:  2008, Farmer 2006, Farmer and Foley 2009, Gatti et al. Cacciatore, M, R Duval and G Fiori (2012) “Short-term gain or pain? 0000002948 00000 n Colander, D, P Howitt, A Kirman, A Leijonhufvud and P Mehrling (2008), "Beyond DSGE models: Toward an empirically based macroeconomics", American Economic Review 98(2): 236-40. Chinese Food Quotes For Instagram, Physics Conference Hawaii 2020, Gillespie County Permits, Bay Leaves Tree, South Kitchen Athens Reservations, Brs Neuroanatomy Latest Edition, Braun And Clarke Thematic Analysis Book, " />
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behavioral foundation macroeconomics

0000002410 00000 n The Foundations of Human Behavior Initiative (FHB) aims to drive transformative insights about the psychological, social, economic, political, and biological mechanisms that influence human behavior – and then translate that knowledge into cost-effective, scalable interventions that improve human well-being around the world. De Grauwe, P and Y Ji (2016), “International correlation of business cycles in a behavioural macroeconomic model”, CEPR, Discussion Paper, April. The Foundations of Behavioral Economic Analysis will be an indispensable resource for students and scholars who wish to understand where the action is." John Paulson Chair in European Political Economy, London School of Economics, and former member of the Belgian parliament. Chapter 4: The Transmission of Shocks . Darst. The models further help to explain the international transmission of business cycle fluctuations. 0000002648 00000 n Nothing in the model creates endogenous business cycle movements. Farmer, R E A (2006), “Animal Spirits”, Palgrave Dictionary of Economics. Gürkaynak, R and C Tille (2017), “DSGE models in the conduct of policy: Use as Intended”, VoxEU. As a result, these agents are only capable … They have to rely on large exogenous shocks as explanations of the boom and bust features of business cycles. 0000006898 00000 n Our decisions would be the result of a careful weighing of costs and benefits and informed by existing preferences. Akerlof (2002) Behavioral Macroeconomics and Macroeconomic Behavior Camerer and Loewenstein (2004) Behavioral Economics: Past, Present, Future Crawford (2013) Boundedly Rational versus Optimization-Based Models of Strategic Thinking and Learning in Games Fudenberg (2006) Advancing beyond Advances in behavioral economics 0000014164 00000 n "—Domenico Delli Gatti, Journal of Economic Literature "De Grauwe voices the concerns of many macroeconomists regarding the empirical plausibility of the rational expectations assumption. This presents the relationship between output and inflation variability that we obtain for increasing levels of flexibility, assuming that the central bank keeps its inflation control constant. In order to understand this, start from point A. The second way we introduce structural reforms is through changes in the supply equation. 2008, Farmer 2006, Farmer and Foley 2009, Gatti et al. 0000003968 00000 n 0000011518 00000 n There is a growing number of researchers developing ‘agent-based’ models and ‘behavioural’ macroeconomic models (Alfarano et al. One issue is the high synchronisation of national business cycles in the industrialised world. The recent awarding of the Nobel Prize to Richard Thaler testifies that there has been a change of view within the economics profession on the need to allow for departures from the paradigm of the ‘homo economicus’. The agent uses an endogenously simpli ed, or \sparse," model of the world and the conse-quences of his actions and acts according to a behavioral Bellman equation. 0000012232 00000 n 0000003839 00000 n 0000007593 00000 n The Bamberg Research Group on Behavioral Macroeconomics and the Macroeconomic Policy Institute (IMK) are pleased to host their first Behavioral Macroeconomics Workshop on the 15 th and 16 th of June 2018, on “New Approaches to Macro-Financial Instability and Inequality”. G��{̪M)�pج�[s�9��q�^�$s2XN-����^���(��A�M�}���A�5�� ���c��z��;tQ*�}Ut�`��ԉ�����M���1���d��h+N��`p��[o��S�8�$f[��y�W��v� @��7�W��x"�C���A��|�G*�Ӓ�ﶔ�}3i �EW\�_�U1��c��$7����_���"��ƹςc���%�\�t NQ\�2�Q{Q=. Just like economics consists of micr oeconomics and macroeconomics, both finance and behavioral finance can be similarly . In these models, individual agents maximise an infinite horizon utility function using rational forecasts based on all available information including the information embedded in the model. 0000005390 00000 n I shall begin my review by describing one of my ear- liest attempts in this fi eld, which led to the discovery of the role of asymmetric information in markets. a "Behavioral Macroeconomics" in order to explain "Macroeconomic Behav- ... 3 lays the foundations for an alternative explanation by analysing the main assumptions of the New Keynesian model putting particular emphasis on the role of the time horizon, money, and capital accumulation. These models then lead to the view that business cycle fluctuations occur as a result of exogenous events (shocks) that force individuals to reconsider their optimal plans. In our latest paper, we used the same behavioural model to analyse how structural reforms affect the nature of business cycles, and the capacity of the central bank to stabilise output and inflation (De Grauwe and Ji 2017b). This point is obtained when flexibility is zero (i.e. 0000004895 00000 n In fact, we can see from Figure 1 that the positively sloped ‘trade-offs’ move upward and to the left (indicated by the arrow) for increasing levels of flexibility (b2). Erster Behavioral Macroeconomics Workshop; BaGBeM Research Workshop "Behavioral Principles of Decision Making in Complex Intertemporal Problems" BaGBeM Research Workshop "Microeconomic Foundations for Classical and Post-Keynesian Economics" BaGBeM Research Workshop "Bounded Rationality in Macroeconomic Models" BaGBeM Research Workshop "Structural Vector Autoregressive … To support rigorous and objective research projects on U.S. economic structure, behavior, and performance whose findings inform and strengthen decision-making by … We find that structural reforms that increase the flexibility of wages and prices can have profound effects on the dynamics of the business cycle. This is not so when the economy is too rigid. Westerhoff, F and R Franke (2012), “Agent-based models for economic policy design: Two illustrative examples”, Iowa State University, Working Paper No 88. 0000003050 00000 n Booms and busts are all the result of exogenous disturbances (Smets and Wouters 2007, Gali 2008). Blanchard, O (2017) “Do DSGE models have a future?” in R Gürkaynak and C Tille (eds), DSGE Models in the Conduct of Policy: Use as Intended, VoxEU ebook. 0000006212 00000 n The trade-offs are represented in Figure 1. This insight allows us to derive this new trade-off by connecting the points that are associated with the same inflation parameter of the Taylor rule. There are many ways in which one can depart from mainstream macroeconomic models. Frontiers of economic research Macroeconomic policy, Tags:  These measure the inflation and output volatility choices the central bank faces when it increases its inflation control (measured by the sensitivity of the interest rate to changes in inflation in the Taylor rule). 1.2 Behaviour. If you want to take behavioral economics here, you can be admitted even if you do not have major in economics in your undergraduate because it is not required; however, micro and macroeconomic courses are significant. Delli Gatti, D, C Di Guilmi, E Gaffeo, G Giuloni, M Gallegati and A Palestrini (2005), “A new approach to business fluctuations: Heterogeneous interacting agents, scaling laws and financial fragility”, Journal of Economic Behavior and Organization 56: 489-512. Only exogenous disturbances can get these agents off the rail, forcing them to re-optimise. This trade-off disappears when the economy is sufficiently flexible. A world without the WTO: what’s at stake? I argue that the insights from behavioral economics have led to important progress in our understanding of macroeconomic phenomena. In general, in more flexible economies central banks do not face the same kind of uncomfortable trade-offs as in rigid economies. Homo economicus continues to reign supreme in dynamic stochastic general equilibrium (DSGE) models. We achieve this without the need to invoke common exogenous shocks (De Grauwe and Ji 2016). Presently, many macroeconomic models, representing different theories, [4] are derived by aggregating microeconomic models allowing economists to test them with both macroeconomic and … De Grauwe, P and Y Ji (2017a) “Inflation targets and the zero lower bound in a behavioural macroeconomic model", Economica, forthcoming. Therefore, these reforms can be seen as shifting the supply curve to the right, increasing the production potential of countries. Chapter 3: A Behavioral Macroeconomic Model . This briefing distils many concepts from behavioural economics and psychology down to seven key principles, which highlight the main shortfalls in the neoclassical model of human behaviour. We would always make optimal decisions. 88 0 obj << /Linearized 1 /O 92 /H [ 1889 543 ] /L 134622 /E 15514 /N 23 /T 132744 >> endobj xref 88 58 0000000016 00000 n Behavioural and Post-Keynesian Foundations for a new Macroeconomics Steven Hail A thesis submitted to Flinders University in fulfilment of the requirements for the degree of Doctor of Philosophy Flinders Business School March 2016 . Behavioral Foundations for Keynesian Macroeconomics: The Consumption Function 0000010819 00000 n (2009) carried out important econometric analysis documenting the non-normality of the distribution of output gaps and growth rates of GDP. While sharing many theoretical and psychologically based tools with behavioural macroeconomics, our contribution does not have the aim of proposing more empirically robust foundations for macroeconomics or for the business cycle. However, when we go too far with structural reforms, we go beyond the minimum point on the line. As we increase the degree of flexibility, we move down along the downward sloping segment of the line. Technically, this means that the distribution of the output gap and output growth is non-Gaussian and exhibits fat tails. In the 1976 book The Economic Approach to Human Behavior, the economist Gary S. Becker famously outlined a number of ideas known as the pillars of so-called ‘rational c… 2014, Cacciatore et al. Evans, G and S Honkapohja (2001), Learning and Expectations in Macroeconomics, Princeton University Press. An important feature of this dynamics of animal spirits is that the movements of the output gap are characterised by periods of tranquility alternating in an unpredictable way with periods of intense movements reflecting booms and busts. From that point on, we obtain a negatively sloped relationship (i.e. 0000012341 00000 n Figure 2 The optimal level of flexibility. 0000003307 00000 n This has to do with the fact that in more flexible economies prices and wages have a greater role to play in adjustments to emerging disequilibria. Gabaix, X (2014), “A sparsity-based model of bounded rationality”, The Quarterly Journal of Economics, 1661–1710. Clearly, this must be located to the left of the minimum point of the relationship. This feature of the higher moments of the output gap is generated endogenously in the model. Gigerenzer, G and R Selten (2002), Bounded rationality, Cambridge: MIT Press. Contrary to mainstream top-down models in which agents are capable of understanding the whole picture and use this superior information to determine their optimal plans, the models used in this book are bottom-up models in which all agents experience cognitive limitations. Application of the models highlights how the trade-off between output and inflation is moderated by the flexibility of the economy. 0000001889 00000 n "These Lectures on Behavioral Macroeconomics remind us that De Grauwe is also an excellent macroeconomic theorist and a wonderful narrator. 0000003600 00000 n 0000012210 00000 n In the spirit of Keynes’ General Theory, behavioral macroeconomists are rebuilding the microfoundations that were sacked by the New Classical economics. Research-based policy analysis and commentary from leading economists, Behavioural economics is also useful in macroeconomics, Paul De Grauwe, Yuemei Ji 01 November 2017. 0000004230 00000 n This column uses concepts from behavioural economics to develop macroeconomic models with endogenous business cycle fluctuations. �3ȥ�(������g��a��g�� These reforms lead to a lowering of mark ups in the goods and labour markets and move the economy closer to perfect competition. 2005, Tesfatsion and Judd 2006, Colander et al. - Martin Dufwenberg, University of Arizona "Sanjit Dhami's Foundations of Behavioral Economic Analysis is a major and most impressive achievement. 0000010271 00000 n Macroeconomic studies emphasize decisions with a time dimension, such as various forms of investments. This adaptive learning assumption introduced in an otherwise standard New Keynesian macroeconomic model produces endogenous waves of optimism and pessimism (animal spirits) that drive the business cycle in a self-fulfilling way. Figure 1 Trade-off between output and inflation. The horizontal axis shows the standard deviations of output; the vertical axis the standard deviations of inflation. Behavioural economics is seeing increased acceptance as a legitimate way of thinking about economic issues. 0000003490 00000 n 0000011496 00000 n We obtain a non-linear relationship. From the liberal arts perspective, this includes the fields of psychology, sociology, anthropology, economics and behavioral economics. We have used our behavioural macroeconomic model to analyse different macroeconomic issues. Why do people buy the stuff they buy? 0000005111 00000 n That is, optimism (pessimism) leads to an increase (decline) in output, and the increase (decline) in output in term intensifies optimism (pessimism) (De Grauwe 2012, De Grauwe and Ji 2017a). In classical economics, most models assume that consumers behave rationally. 0000009677 00000 n This may lead to the conclusion that flexibility is always welfare improving – but that is not the case. 0000009013 00000 n 0000003773 00000 n F��7��a�ަ�O!r�DL]��N(�K(�HM���F���ׄ�E10�V�N" (q�G�'P�RM\���tS�#Q� ��DT˘��&� xA�jJ�����a8�$���ɉY+O���N��L���#(/�R�ش���gܒ�B3@�]3Lí+�yާ�F3�껁o��W��*��ط�sN`͡ާ,���X�]4�x�E��b�7\�HY���Q_;d� endstream endobj 145 0 obj 420 endobj 92 0 obj << /Type /Page /Parent 81 0 R /Resources 114 0 R /Contents [ 121 0 R 123 0 R 125 0 R 127 0 R 129 0 R 135 0 R 137 0 R 143 0 R ] /MediaBox [ 0 0 506 723 ] /CropBox [ 0 0 506 723 ] /Rotate 0 >> endobj 93 0 obj << /Count 10 /Type /Outlines /First 94 0 R /Last 94 0 R >> endobj 94 0 obj << /Title (��n�پ��\\8v�$��~�!���2M����:����҇\n�[y$�,F�) /Parent 93 0 R /A 95 0 R /First 96 0 R /Last 97 0 R /Count 9 >> endobj 95 0 obj << /S /GoTo /D [ 92 0 R /XYZ 0 656 null ] >> endobj 96 0 obj << /Title (�j_�zY5�ml�GJm�П��r��ը) /Parent 94 0 R /A 113 0 R /Next 110 0 R >> endobj 97 0 obj << /Title (��>�ꓪ�) /Parent 94 0 R /Prev 98 0 R /A 99 0 R >> endobj 98 0 obj << /Title (!���=B��@�4��hp) /Parent 94 0 R /Prev 100 0 R /Next 97 0 R /A 101 0 R >> endobj 99 0 obj << /S /GoTo /D [ 49 0 R /XYZ 0 367 null ] >> endobj 100 0 obj << /Title (��:좊�ܚè����U��ZZ�Y��) /Parent 94 0 R /Prev 102 0 R /Next 98 0 R /A 103 0 R >> endobj 101 0 obj << /S /GoTo /D [ 46 0 R /XYZ 0 301 null ] >> endobj 102 0 obj << /Title (n���o��Q�q�9) /Parent 94 0 R /Prev 104 0 R /Next 100 0 R /A 105 0 R >> endobj 103 0 obj << /S /GoTo /D [ 43 0 R /XYZ 0 653 null ] >> endobj 104 0 obj << /Title (����H���+��R) /Parent 94 0 R /Prev 106 0 R /Next 102 0 R /A 107 0 R >> endobj 105 0 obj << /S /GoTo /D [ 37 0 R /XYZ 0 554 null ] >> endobj 106 0 obj << /Title (��r���E��k�'YAɌO$��"� ��f*���*Z�;) /Parent 94 0 R /Prev 108 0 R /Next 104 0 R /A 109 0 R >> endobj 107 0 obj << /S /GoTo /D [ 31 0 R /XYZ 0 543 null ] >> endobj 108 0 obj << /Title (mzJ˶��e�{7"?-&0�׎�v^Qda���AD��a) /Parent 94 0 R /Prev 110 0 R /Next 106 0 R /A 111 0 R >> endobj 109 0 obj << /S /GoTo /D [ 19 0 R /XYZ 0 653 null ] >> endobj 110 0 obj << /Title (C��H�a�%�^h���`G}t�� 㑈��M) /Parent 94 0 R /Prev 96 0 R /Next 108 0 R /A 112 0 R >> endobj 111 0 obj << /S /GoTo /D [ 13 0 R /XYZ 0 444 null ] >> endobj 112 0 obj << /S /GoTo /D [ 7 0 R /XYZ 0 510 null ] >> endobj 113 0 obj << /S /GoTo /D [ 4 0 R /XYZ 0 499 null ] >> endobj 114 0 obj << /ProcSet [ /PDF /Text ] /Font << /F1 119 0 R /F5 115 0 R /F6 116 0 R /F7 133 0 R >> /ExtGState << /GS1 139 0 R >> >> endobj 115 0 obj << /Type /Font /Subtype /Type1 /Encoding 117 0 R /BaseFont /Times-Roman >> endobj 116 0 obj << /Type /Font /Subtype /Type1 /Encoding /MacRomanEncoding /BaseFont /Times-Italic >> endobj 117 0 obj << /Type /Encoding /BaseEncoding /WinAnsiEncoding /Differences [ 17 /Zcaron /zcaron /Lslash /lslash /minus /fraction /breve /caron /dotlessi /dotaccent /hungarumlaut /ogonek /ring /fi /fl ] >> endobj 118 0 obj << /Type /FontDescriptor /Ascent 714 /CapHeight 714 /Descent -198 /Flags 32 /FontBBox [ -166 -214 1076 952 ] /FontName /BAGDCN+HelveticaNeue-Roman /ItalicAngle 0 /StemV 85 /XHeight 517 /CharSet (4���[3�Ƽ��m�΅�O�ب��t�}�) /FontFile3 140 0 R >> endobj 119 0 obj << /Type /Font /Subtype /Type1 /FirstChar 32 /LastChar 181 /Widths [ 278 259 426 556 556 1000 630 278 259 259 352 600 278 389 278 333 556 556 556 556 556 556 556 556 556 556 278 278 600 600 600 556 800 648 685 722 704 611 574 759 722 259 519 667 556 871 722 760 648 760 685 648 574 722 611 926 611 648 611 259 333 259 600 500 222 537 593 537 593 537 296 574 556 222 222 519 222 853 556 574 593 593 333 500 315 556 500 758 518 500 480 333 222 333 600 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 278 556 556 278 278 278 278 278 800 278 278 278 278 278 278 278 600 278 278 278 556 ] /Encoding /WinAnsiEncoding /BaseFont /BAGDCN+HelveticaNeue-Roman /FontDescriptor 118 0 R >> endobj 120 0 obj 606 endobj 121 0 obj << /Filter /FlateDecode /Length 120 0 R >> stream Read the latest chapters of Handbook of Behavioral Economics: Applications and Foundations 1 at ScienceDirect.com, Elsevier’s leading platform of peer-reviewed scholarly literature further increases in flexibility lead to less volatility of output at the expense of increasing inflation volatility). 0000004481 00000 n 0000008991 00000 n Executive Summary This thesis strives to enrich macroeconomic theories with behavioural components. relates to the decision-making process behind an economic outcome of individuals and institutions 0000004416 00000 n We have chosen to do so by assuming that agents experience cognitive limitations preventing them from having rational expectations. 0000004034 00000 n Beyond the minimum point further increases in flexibility lead to lower output volatility at the expense of higher inflation volatility. The foundation of behavioral finance is an area based on an interdisciplinary approach including scholars from the social sciences and business schools. wages and prices do not react to changes in the output gap). A DSGE model-based analysis of the short-term effects of structural reforms in labour and product markets”, OECD, Economics Department Working paper no 948. One good example is the recent effort to integrate the financial sector in DSGE models to explain the business cycle. 0000002729 00000 n Behavioral economics is the study of why people make decisions about money, including how they spend, invest, and save. In this case, the trade-off is negatively sloped. We conclude that the degree of flexibility has profound effects on the trade-offs central banks encounter in their attempts to stabilise the economy. This is provided under the Russell Sage Foundation. In the spirit of Keynes' General Theory, behavioral macroeconomists 0000009801 00000 n We show the result for a given c1 = 1.5 (the inflation parameter) and c2 = 0.5 (the output parameter) in Figure 2. Farmer, R, J Doyne and D Foley (2009), “The economy needs agent-based modelling”, Nature 460: 685-686. The seven principles: Other people’s behaviour matters: people do many things by observing others and copying; people are encouraged to continue to do things when they feel other people approve of their b Such an explanation is not satisfactory, as it shifts the burden of explaining the business cycle to outside forces. However, the results of these models depend on the assumption that the shocks are serially-correlated. 0000001826 00000 n 0000003424 00000 n These deviations from rational calculation are introduced as “non-standard” (the standard being neoclassical economics) or reflections of “bias”. Therefore, during recent decades macroeconomists have attempted to combine microeconomic models of household and business behavior to derive the relationships between macroeconomic variables. 0000001684 00000 n One of the most important is the effect of fairness considerations on wages and employment relationships. The latter is measured by the sensitivity of inflation to the output gap in the New Keynesian Philips curve (called b2). As a result, one can argue that standard DSGE models do not have an endogenous business cycle theory. The economics of insurance and its borders with general finance, Maturity mismatch stretching: Banking has taken a wrong turn. We are, of course, not alone in exploring different tracks of macroeconomic modelling. 2011, Gabaix 2014, Westerhoff and Franke 2012, Hommes 2016, Hommes and Lustenhouwer 2016, Muellbauer 2017; see also the recent criticism of Blanchard 2017 and the chapters in Gürkaynak and Tille 2017). The major question we analyse is how structural reforms affect the choices monetary authorities face. Tesfatsion, L and K L Judd (2006), Handbook of Computational Economics Volume 2: Agent-Based Computational Economics, Elsevier. Model . Topics:  2008, Farmer 2006, Farmer and Foley 2009, Gatti et al. Cacciatore, M, R Duval and G Fiori (2012) “Short-term gain or pain? 0000002948 00000 n Colander, D, P Howitt, A Kirman, A Leijonhufvud and P Mehrling (2008), "Beyond DSGE models: Toward an empirically based macroeconomics", American Economic Review 98(2): 236-40.

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