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Monetary policy decisions tend to be based on systematic analysis of alternative policy choices and their associated macroeconomic impacts: this is science. Fiscal policy choices, in contrast, spring from unsystematic speculation, grounded more in politics than economics: this is alchemy. In...
Persistent link: https://www.econbiz.de/10013136545
This paper presents a framework for analyzing how bounded rationality affects monetary and fiscal policy. The model is a tractable and parsimonious enrichment of the widely-used New Keynesian model – with one main new “cognitive discounting” parameter, which quantifies how poorly agents...
Persistent link: https://www.econbiz.de/10012966932
We develop a Roy model of social interactions in which individuals sort into peer groups based on comparative advantage. Two key results emerge: First, when comparative advantage is the guiding principle of peer group organization, the effect of moving a student into an environment with...
Persistent link: https://www.econbiz.de/10013128607
We describe the pension plan features of the states and the largest cities and counties in the U.S. Unlike in the private sector, defined benefit (DB) pensions are still the norm in the public sector. However, a few jurisdictions have shifted towards defined contribution (DC) plans as their...
Persistent link: https://www.econbiz.de/10013130979
This paper is aimed to assess, with two lab experiments, to what extent Kőszegi and Rabin's (2006) model of expectations-based reference-dependent preferences can explain Knetsch's (1989) endowment effect. Departing from past work, we design an experiment that treats the two goods (a mug and a...
Persistent link: https://www.econbiz.de/10013131234
Households "sort" across neighborhoods according to their wealth and their preferences for public goods, social characteristics, and commuting opportunities. The aggregation of these individual choices in markets and in other institutions influences the supply of amenities and local public...
Persistent link: https://www.econbiz.de/10013138319
We develop and test a simple model of limited attention in intertemporal choice. The model posits that individuals fully attend to consumption in all periods but fail to attend to some future lumpy expenditure opportunities. This asymmetry generates some predictions that overlap with models of...
Persistent link: https://www.econbiz.de/10013139968
Default contribution rates for 401(k) pension plans powerfully influence workers' choices. Potential causes include opt-out costs, procrastination, inattention, and psychological anchoring. We examine the welfare implications of defaults under each of these theories. We show how the optimal...
Persistent link: https://www.econbiz.de/10013118423
Persistent link: https://www.econbiz.de/10013120982
How does an economy behave if (1) fundamentals are truly hump-shaped, exhibiting momentum in the short run and partial mean reversion in the long run, and (2) agents do not know that fundamentals are hump-shaped and base their beliefs on parsimonious models that they fit to the available data? A...
Persistent link: https://www.econbiz.de/10013121090