Cognitive discounting beats rational expectations in US model

Junior Maih estimates a nonstationary New Keynesian model on seven US observables from 1985Q1 to 2019Q4, retaining an occasionally binding policy-rate lower bound.

Cognitive discounting beats rational expectations by 12.8–14.6 log points across the estimated attention structures.

Posterior mean attention is 0.89 for consumption, 0.76 for marginal utility, 0.91 for price inflation and 0.79 for wage inflation.

Reference price and wage inflation receive means of 0.52 and 0.45, with wide posteriors.

Price-level and output attention are unidentified at first order.

A households/firms grouping fits about as well as variable-specific attention; common and block-specific restrictions fit less well.

Evidence rankings depend on an approximate constraint-aware filter.

The operator contracts selected future variables toward reference points consistently across nonlinear equilibrium equations, including growing and regime-switching models.

With common attention of 0.8, the direct precautionary term is 64 percent of its rational magnitude, holding the consumption distribution fixed.

It extends Xavier Gabaix's 2020 first-order discounting to risk.

At the lower bound, permanent pegs are locally determinate only below common attention of 0.720–0.736; the restricted estimate of 0.897 does not remove growing calendar-guidance effects.