By Robert Calvert Jump and Paul Levine
This paper provides a bird’s eye view of the behavioural New Keynesian literature. We discuss three key empirical regularities in macroeconomic data which are not accounted for by the standard New Keynesian model, namely, excess kurtosis, stochastic volatility, and departures from rational expectations. We then present a simple behavioural New Keynesian model that accounts for these empirical regularities in a straightforward manner. We discuss elaborations and extensions of the basic model, and suggest areas for future research.
Nice paper that considers extensions to the standard assumptions of the three-equation New-Keynesian model. It would be nice to see a similar one for DSGE models.