Behavioral Macroeconomics and the New Keynesian Model

The contribution of this paper is twofold. First, a thorough presentation of the state of the art of the New Keynesian Macroeconomic model is provided. A discussion of its empirical caveats follows and some recent extensions of the standard model are evaluated in more detail. Second, a key insight of Behavioral Economics, hyperbolic discounting, is used for the derivation of the IS Curve. It is argued that this approach is more appropriate than the usual praxis of allowing for a rule-of-thumb agent in an otherwise standard optimization framework.Behavioral Economics, New Keynesian Model, Rule-of-Thumbs,Hyperbolic Discounting

A Detailed Derivation of the Sticky Price and Sticky Information New Keynesian DSGE Model

This paper aims at providing macroeconomists with a detailed exposition of the New Keynesian DSGE model. Both the sticky price version and the sticky information variant are derived mathematically. Moreover, we simulate the models, also including lagged terms in the sticky price version, and compare the implied impulse response functions. Finally, we present solution methods for DSGE models, and discuss three important theoretical assumptions.New Keynesian Model, Sticky Prices, Sticky Information, Solution Algorithms

Perceived Inflation under Loss Aversion

Building on Prospect Theory, we apply the concept of loss aversion to the formation of inflation perceptions and test empirically for non- linearities in the inflation-perceptions relation for a panel of 10 Euro area countries. Specifically, under the assumption of loss aversion, inflation changes above a certain reference rate will be perceived more strongly. Rejecting rationality of inflation perceptions in general under symmetric loss and in a majority of cases under flexible loss functions, panel smooth transition models give evidence of non-linearities in the inflation perception formation regarding both actual inflation and time. This result is confirmed by dynamic fixed effects estimates, where the slope of the estimated value function is significantly steeper in the loss region and the implied average reference inflation rate is found close to 2%.Inflation Perceptions, Loss Aversion, Panel Smooth Tran- sition Models, Dynamic Panel.

Prospect Theory and Inflation Perceptions - An Empirical Assessment

Building on the hypotheses of loss aversion with respect to price increases and availability of frequently bought goods, Brachinger (2006,2008) constructs an alternative index of perceived inflation (IPI), which can reproduce the jump in the measure for perceived inflation after the Euro introduction in Germany that was not observable in standard HICP inflation. We test the hypotheses of Prospect Theory with regard to households’ inflation perceptions underlying Brachinger’s IPI in a panel estimation for 12 European countries. There is evidence that perceptions react more strongly to ‘losses’ in inflation than to ‘gains’ before the Euro cash changeover, but not afterwards. Moreover, we find empirical support for the availability hypothesis, stating that frequently bought goods have a stronger influence on inflation perceptions than the overall price index.Inflation Perceptions, Prospect Theory, Dynamic Panel

Do inflation expectations improve model-based inflation forecasts?

Las expectativas de inflación de los pronosticadores profesionales ayudan a mejorar las previsiones de inflación basadas en modelos. Para una amplia gama de modelos de series de tiempo para el área del euro y sus Estados miembros, encontramos una mayor precisión de pronóstico en los modelos que incorporan información sobre las expectativas de inflación de Encuesta a Pronosticadores Profesionales (SPF) del Banco Central Europeo y Consensus Economics en comparación con las contrapartes de ellos que no lo hacen. Las ganancias en la precisión de los pronósticos al incorporar las expectativas de inflación generalmente no son grandes, pero sí significativas en algunos períodos. Ambas expectativas, tanto a corto como a largo plazo, proporcionan información útil. Por el contrario, la incorporación de expectativas derivadas de los precios de los mercados financieros o de las empresas y los hogares no conduce a mejoras sistemáticas en el desempeño de las previsiones. Los modelos individuales que consideramos suelen ser mejores que los modelos univariados benchmark, pero para el área del euro los pronosticadores profesionales son más precisos, especialmente en los últimos años (no siempre es así para los países). El análisis se lleva a cabo para la inflación general y la inflación excluidas la energía y los alimentos, y tanto el pronóstico puntual como el de densidad se evalúan utilizando datos obtenidos en tiempo real durante el período 2001-2019.Those of professional forecasters do. For a wide range of time series models for the euro area and its member states we find a higher average forecast accuracy of models that incorporate information on inflation expectations from the ECB’s SPF and Consensus Economics compared to their counterparts that do not. The gains in forecast accuracy from incorporating inflation expectations are typically not large but significant in some periods. Both short- and long-term expectations provide useful information. By contrast, incorporating expectations derived from financial market prices or those of firms and households does not lead to systematic improvements in forecast performance. Individual models we consider are typically better than univariate benchmarks but for the euro area the professional forecasters are more accurate, especially in recent years (not always for the countries). The analysis is undertaken for headline inflation and inflation excluding energy and food and both point and density forecast are evaluated using real-time data vintages over 2001-2019

New facts on consumer price rigidity in the euro area

Usando microdatos del IPC para 11 países del área del euro, que representan el 60 % de la cesta europea de consumo durante el período 2010-2019, documentamos nuevos resultados sobre rigidez de precios en el área del euro: i) cada mes, en promedio, el 12,3 % de los precios sufren cambios, en comparación con un 19,3 % en Estados Unidos; cuando excluimos cambios debidos a descuentos, sin embargo, la proporción de precios que se ajustan cada mes cae al 8,5 % en el área del euro, y es del 10 % en Estados Unidos; ii) existen pocas diferencias en rigideces de precios entre los distintos países, y estas son mayores entre sectores; iii) la mediana de la distribución de incrementos (descensos) de precio es del 9,6 % (13 %) incluyendo descuentos y del 6,7 % (8,7 %) excluyéndolos; la heterogeneidad entre países es más pronunciada en el tamaño del cambio de precios que en la frecuencia del cambio; iv) la distribución de cambios de precio tiene una alta dispersión: el 14 % de los cambios de precio en valor absoluto son menores del 2 % y el 10 % exceden el 20 %; v) la frecuencia de cambios de precio apenas cambia con la inflación y responde muy poco a perturbaciones agregadas, y vi) cambios en la inflación vienen mayormente determinados por movimientos en el tamaño del cambio de precios; si descomponemos este efecto, los cambios en la proporción de incrementos de precio tienen mayor peso que los cambios en el tamaño de estos y que en el tamaño de las disminuciones de precio. Estos resultados son coherentes con las predicciones de un modelo de costes de menú en un contexto de baja inflación en el que las perturbaciones idiosincrásicas son más relevantes que las perturbaciones agregadas para explicar los ajustes de precios.Using CPI micro data for 11 euro area countries, covering 60% of the European consumption basket over the period 2010-2019, we document new findings on consumer price rigidity in the euro area: (i) on average 12.3% of prices change each month, compared with 19.3% in the United States; however, when price changes due to sales are excluded, the proportion of prices adjusted each month is 8.5% in the euro area versus 10% in the United States; (ii) the differences in price rigidity are rather limited across euro area countries and are larger across sectors; (iii) the median price increase (decrease) is 9.6% (13%) when including sales and 6.7% (8.7%) when excluding sales; cross-country heterogeneity is more pronounced for the size of the price change than for the frequency; (iv) the distribution of price changes is highly dispersed: 14% of price changes are below 2% in absolute values, whereas 10% are above 20%; (v) the frequency of price changes barely changes with inflation and it responds very little to aggregate shocks; (vi) changes in inflation are mostly driven by movements in the overall size of the price change; when this effect is broken down, variations in the share of price increases have a greater weight than changes in the size of the price increase or in the size of the price decrease. These findings are consistent with the predictions of a menu cost model in a low-inflation environment in which idiosyncratic shocks are a more relevant driver of price adjustments than aggregate shocks

New facts on consumer price rigidity in the euro area

Summary of Banco de España Working Paper no. 222

Towards an Intrinsic Doppler Correction for X-ray Spectroscopy of Stored Ions at CRYRING@ESR

We report on a new experimental approach for the Doppler correction of X-rays emitted by heavy ions, using novel metallic magnetic calorimeter detectors which uniquely combine a high spectral resolution with a broad bandwidth acceptance. The measurement was carried out at the electron cooler of CRYRING@ESR at GSI, Darmstadt, Germany. The X-ray emission associated with the radiative recombination of cooler electrons and stored hydrogen-like uranium ions was investigated using two novel microcalorimeter detectors positioned under 0∘ and 180∘ with respect to the ion beam axis. This new experimental setup allowed the investigation of the region of the N, M → L transitions in helium-like uranium with a spectral resolution unmatched by previous studies using conventional semiconductor X-ray detectors. When assuming that the rest-frame energy of at least a few of the recorded transitions is well-known from theory or experiments, a precise measurement of the Doppler shifted line positions in the laboratory system can be used to determine the ion beam velocity using only spectral information. The spectral resolution achievable with microcalorimeter detectors should, for the first time, allow intrinsic Doppler correction to be performed for the precision X-ray spectroscopy of stored heavy ions. A comparison with data from a previous experiment at the ESR electron cooler, as well as the conventional method of conducting Doppler correction using electron cooler parameters, will be discussed

A global database for metacommunity ecology, integrating species, traits, environment and space

The use of functional information in the form of species traits plays an important role in explaining biodiversity patterns and responses to environmental changes. Although relationships between species composition, their traits, and the environment have been extensively studied on a case-by-case basis, results are variable, and it remains unclear how generalizable these relationships are across ecosystems, taxa and spatial scales. To address this gap, we collated 80 datasets from trait-based studies into a global database for metaCommunity Ecology: Species, Traits, Environment and Space; “CESTES”. Each dataset includes four matrices: species community abundances or presences/absences across multiple sites, species trait information, environmental variables and spatial coordinates of the sampling sites. The CESTES database is a live database: it will be maintained and expanded in the future as new datasets become available. By its harmonized structure, and the diversity of ecosystem types, taxonomic groups, and spatial scales it covers, the CESTES database provides an important opportunity for synthetic trait-based research in community ecology