Aggregating Rational Expectations Models in the Presence of Unobserved Micro Heterogeneity

57 Pages Posted: 6 Sep 2009

See all articles by Eric Jondeau

Eric Jondeau

University of Lausanne - Faculty of Business and Economics (HEC Lausanne); Swiss Finance Institute

Florian Pelgrin

EDHEC Business School; EDHEC Business School

Date Written: August 1, 2009

Abstract

Our paper addresses the correction of the aggregation bias in linear rational expectations models when there is some unobserved micro-parameter heterogeneity and only macro data are available. Starting from Lewbel (1994), we propose two new consistent estimators, which rely on a exible parametric specification of the cross-sectional parameter distributions and account for the dependence across coefficients inherent in such models. A Monte-Carlo study reveals that the nite-sample and asymptotic properties of the proposed estimators correct the aggregation bias found with the maximum-likelihood and generalized-method-of-moments approaches. As a by-product, we can also infer the cross-sectional distribution of the parameters. Finally, we eassess the empirical evidence about the New Keynesian Phillips curve and explain the apparent discrepancy between micro- and macro-based estimates of the average persistence of inflation.

Keywords: aggregation, rational expectations models, heterogeneity

JEL Classification: C13, C2, E2

Suggested Citation

Jondeau, Eric and Pelgrin, Florian, Aggregating Rational Expectations Models in the Presence of Unobserved Micro Heterogeneity (August 1, 2009). Swiss Finance Institute Research Paper No. 09-30. Available at SSRN: https://ssrn.com/abstract=1468504 or http://dx.doi.org/10.2139/ssrn.1468504

Eric Jondeau (Contact Author)

University of Lausanne - Faculty of Business and Economics (HEC Lausanne) ( email )

Extranef 232
Lausanne, 1012
Switzerland
+41 21 692 33 49 (Phone)

HOME PAGE: http://www.hec.unil.ch/ejondeau/

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Florian Pelgrin

EDHEC Business School ( email )

France
Switzerland

EDHEC Business School ( email )

58 rue du Port
Lille, 59046
France

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