Research Workshop on "Behavioral Expectations and Finite Horizon Planing"

Date: 27.- 29. October 2022
Speaker: Joep Lustenhouwer


  • Bounded rationality versus Rationality
  • Heterogeneous expectations
  • Credibility, anchoring, and monetary policy
  • Adaptive learning and infinite horizon learning
  • Laboratory experiments
  • A model with finite planning horizons
  • Fiscal policy and finite planning horizons
  • Programming a model with finite planning horizons in python


Macroeconomic models can give useful insights into economic developments and provide policy implications for monetary and fiscal policymakers. The outcomes and policy implications can however crucially depend on the assumptions made in these models. In this course, we will focus on two such assumptions: rational expectation and infinite horizon planning.  We will consider how we may deviate from these two assumptions to arrive at more robust policy implications and to gain new insights into aspects of monetary and fiscal policy that cannot be studied well under the assumption of full rationality.

Prior knowledge of Python is not required, but basic programming skills will certainly help to follow the workshop. Participants who wish to replicate the code and simulations during the sessions should already have Python installed on their computers. 

This course is open for advanced masters students and PhD candidates. If you would like to participate, please send a short email describing your motivation, together with your CV to kangkan.choudhury(at) before 26.10.2022. You will be notified of your acceptance. 

The course will be held in a hybrid-mode. External participation is only virtually possible. No financial support is available.

About the Speaker:

Joep Lustenhouwer is an assistant professor (Jun.Prof.) in Macroeconomics at Heidelberg University and has a PhD from the University of Amsterdam. Before coming to Heidelberg University, he was a postdoctoral researcher at the University of Bamberg.  A large part of Joep's research focuses on expectation formation and its implications for macroeconomics. He uses complementary methodologies by empirically analyzing survey expectations, conducting controlled laboratory experiments, and incorporating bounded rationality into macroeconomic modeling. Here, he especially focuses on studying issues and models that concern monetary and fiscal policy. Additionally, he studies the implications of finite planning horizons for fiscal policy. 


Thursday, 27. October

13:30-15:00      1) Bounded rationality

15:15-16:45      2) Heterogeneous expectations

17:00-18:30      3) Credibility. Anchoring an monetary policy

Friday, 28. October 

13:00-14:30      4) Adaptive learning and infinite horizon learning

14:45-16:15      5) Tutorial:  deriving behavioral infinite horizon NK model

16:30-18:00      6) Laboratory experiments

Saturday, 29. October 

10:30-12:00      7) A model with finite planning horizons

12:00-13:00      Lunch

13:00-14:30      8) Finite planning horizons and fiscal policy

14:45-16:15      9) Tutorial:  solving finite horizon model in Python part 1

16:30-18:00      10)  Tutorial: solving finite horizon model in Python part 2


Assenza, T., Heemeijer, P., Hommes, C. H., & Massaro, D. (2019). Managing self-organization of expectations through monetary policy: a macro experiment. Journal of Monetary Economics.

Bullard, James, and Kaushik Mitra. "Learning about monetary policy rules." Journal of Monetary Economics 49.6 (2002): 1105-1129.

Evans, George W., Eran Guse, and Seppo Honkapohja. "Liquidity traps, learning and stagnation." European Economic Review 52.8 (2008): 1438-1463.

Evans, G. W., & Honkapohja, S. (2012). Learning and expectations in macroeconomics. In Learning and Expectations in Macroeconomics. Princeton University Press.

De Grauwe, P. (2012). Lectures on Behavioral Macroeconomics. Princeton University Press.

Cars Hommes, Joep Lustenhouwer (2019a). Inflation Targeting and Liquidity Traps under Endogenous Credibility. Journal of Monetary Economics.

Cars Hommes, Joep Lustenhouwer (2019b). Managing Unanchored, Heterogeneous Expectations and Liquidity Traps. Journal of Economic Dynamics and Control.

Hommes, C., Massaro, D., & Salle, I. (2019). Monetary and fiscal policy design at the zero lower bound: Evidence from the lab. Economic Inquiry57(2), 1120-1140.

Joep Lustenhouwer (2020). Fiscal Stimulus in Expectations-Driven Liquidity Traps. Journal of Economic Behavior & Organization.

Joep Lustenhouwer (2021). Unanchored Expectations: Self-reinforcing Liquidity Traps and Multiple Steady States. Macroeconomic Dynamics.

Joep Lustenhouwer, Kostas Mavromatis (2021). The Effects of Fiscal Policy when Planning Horizons are Finite. DNB Working Paper No. 717. Revise and Resubmit, Journal of Money, Credit and Banking.

Joep Lustenhouwer, Isabelle Salle (2022). Forecast revisions in the presence of news: a lab investigation. AWI discussion paper series No. 714.