A number of consequences emerge. (i) Fiscal stimulus or \helicopter drops of money" are powerful and, indeed, pull the economy out of the zero lower bound. More generally, the model allows for the joint analysis of optimal monetary and fiscal policy. (ii) The Taylor principle is strongly...

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...

This chapter aims to provide a hands-on approach to New Keynesian models and their uses for macroeconomic policy analysis. It starts by reviewing the origins of the New Keynesian approach, the key model ingredients and representative models. Building blocks of current-generation dynamic...

This paper estimates and compares three recent Behavioral New Keynesian models: the finite horizon planning model proposed by Woodford (2018), the cognitive discounting model proposed by Gabaix (2020), and the imperfect common knowledge model proposed by Angeletos and Lian (2018). I show that...

We show that the effectiveness of redistribution policy is tied to how much inflation it generates, and thereby to monetary‐fiscal adjustments that ultimately finance the transfers. In the monetary regime, taxes increase to finance transfers while in the fiscal regime, inflation rises,...