Macroeconomics Seminar (Joint with Macroeconomics seminar, KIER)
Seunghoon Na（Purdue University）
- 2023.6.7 (Wed) 15:00-16:30
- N101/N102 on 1F, Kyoto Institute of Economic Research, North Bldg., Yoshida Campus, Kyoto University
- Shinichi Nishiyama
"Diagnostic Expectations and Open Economy Business Cycles," co-authored with Donghoon Yoo
In this paper, we integrate diagnostic expectations (DE) of decision-makers, which are based on the psychological concept of "representativeness heuristic" (Kahneman and Tversky, 1972), into a dynamic open macro model. We investigate how DE influences the dynamic behavior of consumption, investment, and trade balance, comparing to the Rational Expectations (RE) benchmark. Additionally, we estimate the DE model to determine the degree of diagnosticity, predict the sources of business cycles, and identify similarities and differences compared to the estimated RE model. Furthermore, we explore how DE might offer potential remedies in cases where the RE model is misspecified.