Endogenous Persistence in an Estimated DSGE Model Under Imperfect Information

26 Pages Posted: 13 Nov 2012

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: December 2012

Abstract

A framework for estimating Dynamic Stochastic General Equilibrium (DSGE) models by Bayesian methods and validation under very general information assumptions is applied to a New Keynesian model. The standard asssumption that private agents have perfect information observing all state variables including shocks, whereas the econometrician uses only observable data, is compared with both agents having the same imperfect information (II) set. We also generalise rational expectations to a behavioural composite model that allows some households and firms to form expectations adaptively. We find significant empirical support for II as an endogenous persistence mechanism, but this is dominated by that from habit and adaptive learning.

Suggested Citation

Levine, Paul L. and Pearlman, Joseph G. and Perendia, George, Endogenous Persistence in an Estimated DSGE Model Under Imperfect Information (December 2012). The Economic Journal, Vol. 122, Issue 565, pp. 1287-1312, 2012. Available at SSRN: https://ssrn.com/abstract=2174792 or http://dx.doi.org/10.1111/j.1468-0297.2012.02524.x

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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