Interest Rate Skewness and Biased Beliefs

Investigating the Relationship between the Facility Interest Rate and the Bank Deposit Interest Rate in Iran

The facility interest rate is one of the most important macroeconomic variables. The bank facility interest rate is associated with other macro-economic variables, one of which is the bank deposit interest rate. Using the time series data of the 1973-2017 period and the simultaneous equation system, the researchers estimated four equations using the three-stage least squares method.The result o...

Biased Beliefs and Imperfect Information

Biased Beliefs and Imperfect Information We perform an incentivized experiment designed to assess the accuracy of beliefs about characteristics and decisions. Subjects are asked to declare some specific choices and characteristics with different levels of observability from an external point of view, and typically formed through real world experiences. From the less observable mobile phone purc...

Interest rate and output gap: Does central bank credibility matter?

This paper studies the effects of central bank credibility on nominal interest rate and output gap on 17 inflation targeting (IT) developing countries using Instrument Variables (IV) over a period that spans 24 years (1996-2019). In the first stage, using new Keynesian model is obtained “Credibility loss” index to measure the importance of central bank past performance and its deviation from it...

Global Knowledge, Local Solutions: Interest Rate and Monetary Policy

The Cushioning Benefits of Biased Beliefs

We present a model of dynamic investment and production when producers may have biased beliefs in which they overextrapolate recent demand conditions into the future. We point out that in a volatile industry, while biased beliefs lead firms to make sub-optimal investment decisions in the short-run, they can be beneficial in the long-run by counteracting the general trend in the industry, “cushi...