Open AccessEndogenous Persistence in an estimated DSGE Model Under Imperfect Information *
Author(s) -
Levine Paul,
Pearlman Joseph,
Perendia George,
Yang Bo
Publication year - 2012
Publication title -
the economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.683
H-Index - 160
eISSN - 1468-0297
pISSN - 0013-0133
DOI - 10.1111/j.1468-0297.2012.02524.x
Subject(s) - george (robot) , persistence (discontinuity) , imperfect , classics , advice (programming) , history , library science , art history , computer science , philosophy , engineering , linguistics , geotechnical engineering , programming language
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.