CNB WP 12/2026 – Bounded Rationality, Monetary Policy, and the Scars of Supply Shocks

Dario Bonciani, František Mašek, Paolo Nanni, Giulio Tarquini

Bounded rationality reshapes monetary policy trade-offs in response to supply shocks in a New Keynesian model with endogenous growth. Unlike in a standard New Keynesian model with exogenous productivity, a temporary supply disturbance can leave long-lasting scars when productivity growth is endogenous. We illustrate the mechanism for an adverse realization of the shock, which depresses innovation and future productivity, giving rise to long-run scarring and persistent inflationary pressures. Under rational expectations, an inflation-focused monetary policy stance eases the initial rise in inflation but amplifies the fall in demand, innovation, and productivity. Under bounded rationality, households underreact to future income losses. This weakens the negative wealth effect and mitigates the decline in demand and growth. Consequently, the persistent inflationary effects disappear..

JEL kódy: E22, E32, E52, E71, O40

Klíčová slova: Growth, imperfect rationality, monetary policy, myopia, supply shocks.

Vydáno: srpen 2026

Ke stažení: CNB WP No. 12/2026 (pdf, 1,7 MB)