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Title: Optimal monetary policy in a mixed-frequency new Keynesian macroeconomic model with animal spirits Authors:  Matthias Lengnick - University of Kiel, FinMin SH (Germany) [presenting]
Christian Proano - University of Bamberg (Germany)
Naira Kotb - University of Bamberg (Germany)
Hans-Werner Wohltmann - University of Kiel (Germany)
Abstract: The focus is on the difference between the Data Generating Process (DGP) of an economy and the Data Collecting Process (DCP) and the resulting implication for the design of monetary policy. Building on previous work, we assume that the financial markets activities (transactions, prices and returns) are observable at a much higher frequency (e.g.\ daily) than real sector activities, which are observable at a lower frequency (e.g.\ quarterly). This asynchrony -- present in the real world but widely ignored in macroeconomic theory -- posits interesting questions both in terms of modeling and in terms of optimal monetary policy design. We develop a behavioral New Keynesian Model with an integrated financial market where all dynamics (real sector \& financial sector) are defined on daily intervals. Real sector dynamics are observable by the agents only quarterly. However, the central bank is assumed superior to the agents in the sense that it has the capability of observing the dynamics, both in the real and the financial sector, on daily basis. Optimal monetary policy analysis is conducted, through which different linear and nonlinear policy rules are compared. The main questions are, is it worth it for the monetary policy to react to daily dynamics? And when should monetary policy react to financial data?