Estimating DSGE Models under Partial Information

CDMA Working Paper No. 0722

19 Pages Posted: 26 Mar 2008

See all articles by Paul Levine

Paul Levine

School of Economics, University of Surrey

Joseph Pearlman

London Metropolitan University - Department of Economics, Finance and International Business (EFIB)

George Perendia

affiliation not provided to SSRN

Date Written: November 17, 2007

Abstract

Most DSGE models and methods make inappropriate asymmetric information assumptions. They assume that all economic agents have full access to measurement of all variables and past shocks, whereas the econometricians have no access to this. An alternative assumption is that there is symmetry, in that the information set available to both agents and econometricians is incomplete. The reality lies somewhere between the two, because agents are likely to be subject to idiosyncratic shocks which they can observe, but are unable to observe other agents' idiosyncratic shocks, as well as being unable to observe certain economy-wide shocks; however such assumptions generally lead to models that have no closed-form solution. This research aims to compare the two alternatives - the asymmetric case, as commonly used in the literature, and the symmetric case, which uses the partial information solution of Pearlman et al. (1986) using standard EU datasets. We use Bayesian MCMC methods, with log-likelihoods accounting for partial information. The work then extends the data to allow for a greater variety of measurements, and evaluates the effect on estimates, along the lines of work by Boivin and Giannoni (2005).

Keywords: partial information, DSGE models, Bayesian maximum likelihood

JEL Classification: C11, C13, D58, D82

Suggested Citation

Levine, Paul L. and Pearlman, Joseph G. and Perendia, George, Estimating DSGE Models under Partial Information (November 17, 2007). CDMA Working Paper No. 0722. Available at SSRN: https://ssrn.com/abstract=1112082 or http://dx.doi.org/10.2139/ssrn.1112082

Paul L. Levine (Contact Author)

School of Economics, University of Surrey ( email )

Guildford
Surrey GU2 7XH
United Kingdom
+44 1483 259 380 Ext. 2773 (Phone)
+44 1483 259 548 (Fax)

Joseph G. Pearlman

London Metropolitan University - Department of Economics, Finance and International Business (EFIB) ( email )

Economics Subject Group, LMBS
London EC2M 6SQ, EC2M 6SQ
United Kingdom

George Perendia

affiliation not provided to SSRN ( email )

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