January 28, 2026, Filed Under: Working PaperA Behavioral Heterogeneous Agent New Keynesian Model EMPCT Working Paper Series No. 2026-0180 pages | PDF Download | PDF in Browser CitationPfäuti, Oliver and Fabian Seyrich, “A Behavioral Heterogeneous Agent New Keynesian Model”, January 2026 Oliver PfäutiThe University of Texas at Austin, Department of Economics Fabian SeyrichFrankfurt School of Finance & Management DIW Berlin AbstractWe develop a behavioral Heterogeneous Agent New Keynesian model embeddingtwo empirically-disciplined features: households with high MPCs are more exposedto aggregate income fluctuations, and households cognitively discount aggregate news.Together, these features align the model with recent empirical evidence on the monetarytransmission, and their interaction generates a demand-driven amplification mechanismmaking inflation stabilization particularly difficult for monetary policy after supply andgovernment spending shocks. We calibrate the model to micro evidence and find thatTFP shocks increase inflation twice as much as when abstracting from heterogeneityand cognitive discounting, with the largest amplification component coming from theircomplementarity.
