Advanced Search
MyIDEAS: Login

A Bayesian DSGE Model with Infinite-Horizon Learning: Do "Mechanical" Sources of Persistence Become Superfluous?

Contents:

Author Info

  • Fabio Milani

    ()
    (Department of Economics, University of California-Irvine)

Abstract

This paper estimates a monetary DSGE model with learning introduced from the primitive assumptions. The model nests infinite-horizon learning and features, such as habit formation in consumption and inflation indexation, that are essential for the model fit under rational expectations. I estimate the DSGE model by Bayesian methods, obtaining estimates of the main learning parameter, the constant gain, jointly with the deep parameters of the economy. The results show that relaxing the assumption of rational expectations in favor of learning may render mechanical sources of persistence superfluous. In particular, learning appears a crucial determinant of inflation inertia.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.economics.uci.edu/files/economics/docs/workingpapers/2006-07/Milani-03.pdf
Download Restriction: no

Bibliographic Info

Paper provided by University of California-Irvine, Department of Economics in its series Working Papers with number 060703.

as in new window
Length: 19 pages
Date of creation: Dec 2005
Date of revision:
Handle: RePEc:irv:wpaper:060703

Contact details of provider:
Postal: Irvine, CA 92697-3125
Phone: (949) 824-5788
Web page: http://www.economics.uci.edu/
More information through EDIRC

Related research

Keywords: Infinite-horizon learning; DSGE model; Bayesian estimation; Non-rational expectations; Inflation persistence; Habit formation;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. James Bullard & Kaushik Mitra, 2002. "Learning about monetary policy rules," Working Papers 2000-001, Federal Reserve Bank of St. Louis.
  2. Athanasios Orphanides & John C. Williams, 2003. "Imperfect Knowledge, Inflation Expectations, and Monetary Policy," NBER Working Papers 9884, National Bureau of Economic Research, Inc.
  3. Athanasios Orphanides & John C. Williams, 2005. "Inflation scares and forecast-based monetary policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 498-527, April.
  4. Sungbae An & Frank Schorfheide, 2006. "Bayesian analysis of DSGE models," Working Papers 06-5, Federal Reserve Bank of Philadelphia.
  5. Milani, Fabio, 2008. "Learning, monetary policy rules, and macroeconomic stability," Journal of Economic Dynamics and Control, Elsevier, vol. 32(10), pages 3148-3165, October.
  6. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper Series WP-01-08, Federal Reserve Bank of Chicago.
  7. Marc P. Giannoni & Michael Woodford, 2003. "Optimal Inflation Targeting Rules," NBER Working Papers 9939, National Bureau of Economic Research, Inc.
  8. Preston, Bruce, 2006. "Adaptive learning, forecast-based instrument rules and monetary policy," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 507-535, April.
  9. Boivin, Jean & Giannoni, Marc, 2006. "Has Monetary Policy Become More Effective?," CEPR Discussion Papers 5463, C.E.P.R. Discussion Papers.
  10. Fabio Milani, 2005. "Adaptive Learning and Inflation Persistence," Macroeconomics 0506013, EconWPA.
  11. Bruce Preston, 2005. "Learning about Monetary Policy Rules when Long-Horizon Expectations Matter," International Journal of Central Banking, International Journal of Central Banking, vol. 1(2), September.
  12. Frank Smets & Raf Wouters, 2004. "Comparing shocks and frictions in US and euro area business cycles: a Bayesian DSGE approach," Working Paper Research 61, National Bank of Belgium.
  13. Frank Smets & Raf Wouters, 2004. "Forecasting with a Bayesian DSGE Model: an application to the euro area," Working Paper Research 60, National Bank of Belgium.
  14. Preston, Bruce, 2008. "Adaptive learning and the use of forecasts in monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 32(11), pages 3661-3681, November.
  15. Frank Smets & Raf Wouters, 2002. "Monetary policy in an estimated stochastic dynamic general equilibrium model of the Euro area," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Fabio Milani, 2006. "The Evolution of the Fed's Inflation Target in an Estimated Model under RE and Learning," Working Papers 060704, University of California-Irvine, Department of Economics.
  2. Sergey Slobodyan & Raf Wouters, 2009. "Learning in an Estimated Medium-Scale DSGE Model," CERGE-EI Working Papers wp396, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  3. Milani, Fabio, 2011. "The impact of foreign stock markets on macroeconomic dynamics in open economies: A structural estimation," Journal of International Money and Finance, Elsevier, vol. 30(1), pages 111-129, February.
  4. Tim Taylor & Richard Harrison, 2008. "Misperceptions, heterogeneous expectations and macroeconomic dynamics," 2008 Meeting Papers 710, Society for Economic Dynamics.
  5. Fazzari, Steven M. & Ferri, Piero & Greenberg, Edward, 2010. "Investment and the Taylor rule in a dynamic Keynesian model," Journal of Economic Dynamics and Control, Elsevier, vol. 34(10), pages 2010-2022, October.
  6. Krisztina Molnár & Sergio Santoro, 2010. "Optimal Monetary Policy when Agents are Learning," CESifo Working Paper Series 3072, CESifo Group Munich.
  7. Fabio Milani, 2009. "Expectations, Learning, and the Changing Relationship between Oil Prices and the Macroeconomy," Working Papers 080923, University of California-Irvine, Department of Economics.
  8. Bask, Mikael & Selander, Carina, 2007. "Robust Taylor rules in an open economy with heterogeneous expectations and least squares learning," Research Discussion Papers 6/2007, Bank of Finland.
  9. Chevillon, Guillaume & Massmann, Michael & Mavroeidis, Sophocles, 2010. "Inference in models with adaptive learning," Journal of Monetary Economics, Elsevier, vol. 57(3), pages 341-351, April.
  10. Fabio Milani, 2009. "The Effect of Global Output on U.S. Inflation and Inflation Expectations: A Structural Estimation," Working Papers 080920, University of California-Irvine, Department of Economics.
  11. Timothy Cogley & Argia M. Sbordone, 2006. "Trend inflation and inflation persistence in the New Keynesian Phillips curve," Staff Reports 270, Federal Reserve Bank of New York.
  12. Claudio Borio & Piti Disyatat & Mikael Juselius, 2014. "A parsimonious approach to incorporating economic information in measures of potential output," BIS Working Papers 442, Bank for International Settlements.
  13. John M. Roberts, 2007. "Learning, Sticky Inflation, and the Sacrifice Ratio," Kiel Working Papers 1365, Kiel Institute for the World Economy.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:irv:wpaper:060703. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jennifer dos Santos).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.