Business & Economics
This paper has met the requirements for Distinguished Honors
This paper is a two-dimensional analysis of agent behavior in a standard New Keynesian (NK) Macroeconomic model. On the dimension of pure mathematics, we analyze the parameters of the NK model and of possible prediction rules. On the other dimension we continue a practice of empirical study of heterogeneous expectations with an experiment. The experiment will ask participants to make predictions of future output and inflation. Their responses will create a data-set upon which analysis will be performed to illuminate and corroborate current theories of economic decision making. The literature has shown that most agents' forecasting rules can be modeled by basic linear formulae. We conclude that some subject's predictions are consistent with recursively updating coefficient models, while others still use more inscrutable methods. Despite this, and regardless of which model fit them best, the subjects' errors were all of similar magnitudes.
Graven, Atticus David Holm, "Experimental Evidence for Heterogeneous Expectations in a Simple New Keynesian Framework" (2014). Business and Economics Honors Papers. 5.