Factor Analysis in a Model with Rational Expectations
Abstract
DSGE models are characterized by the presence of expectations as explanatory variables. To use these models for policy evaluation, the econometrician must estimate the parameters of expectation terms. Standard estimation methods have several drawbacks, including possible lack or weakness of identification of the parameters, misspecification of the model due to omitted variables or parameter instability, and the common use of inefficient estimation methods. Several authors have raised concerns over the implications of using inappropriate instruments to achieve identification. In this paper we analyze the practical relevance of these problems and we propose to combine factor analysis for information extraction from large data sets and GMM to estimate the parameters of systems of forward looking equations. Using these techniques, we evaluate the robustness of recent findings on the importance of forward looking components in the equations of a standard New-Keynesian model.Download Info
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13404.Length:
Date of creation: Sep 2007
Date of revision:
Handle: RePEc:nbr:nberwo:13404
Note: EFG ME
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Keywords:Other versions of this item:
- Andreas Beyer & Roger E. A. Farmer & Jér�me Henry & Massimiliano Marcellino, 2008. "Factor analysis in a model with rational expectations," Econometrics Journal, Royal Economic Society, vol. 11(2), pages 271-286, 07.
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-09-16 (All new papers)
- NEP-CBA-2007-09-16 (Central Banking)
- NEP-DGE-2007-09-16 (Dynamic General Equilibrium)
- NEP-ECM-2007-09-16 (Econometrics)
- NEP-MAC-2007-09-16 (Macroeconomics)
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Rolf Scheufele, 2008.
"Evaluating the German (New Keynesian) Phillips Curve,"
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