Assessing the Impacts of Non-Ricardian Households in an Estimated New Keynesian DSGE Model

A New Keynesian DSGE model with non-Ricardian households is estimated and tested for the Portuguese economy The share of non-Ricardian households is estimated to be 58%. This relatively high value conforms to estimates for the US economy (50%), but is higher than for other European countries (between 25% and 37%). The results are sensitive to the share of non-Ricardian households. Impulse responses to consumption preference and productivity shocks are amplified for lower shares; for greater proportions, the model predicts more noticeable responses to price markup and government spending shocks. Fluctuations in output growth are mainly driven by productivity shocks for a lower share and by price markup shocks in the opposite scenario. Furthermore, a high share together with a high degree of price stickiness leads indeterminacies.