Behavioral inattention computation

The most abstract process is to empirically validate inattention theory. Our study focuses on developing and evaluating a behavioral New Keynesian model tailored to the Gambian economy, our inspiration was derived from Gabaix (2014). We investigate the interactions between monetary and fiscal policies, estimating inattention parameters for consumers and firms through Bayesian methods. Our findings indicate that the parameters 𝑀 𝑎𝑛𝑑 𝑀𝑓 , which were originally introduced by Gabaix (2020), are estimated to be 0.7985 and 0.9701 for consumers and firms, respectively. Furthermore, we simulate scenarios of monetary and fiscal dominance to gain insights into the implications of different policy regimes. Our results suggest that in monetary dominance situations, the monetary authority should prioritize achieving its inflation target. However, in fiscal dominance contexts, the authority should instead take into account the trajectory of public debt and accommodate accordingly.