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Recent Developments in DSGE Modelling: Beyond FIRE

Author

Listed:
  • Paul Levine
  • Joseph Pearlman
  • Bo Yang
  • Son Pham

Abstract

This survey focuses on the standard assumption in DSGE models: rational expectations (RE) with perfect information (PI) aka full information (FI)—hence FIRE. RE means model consistent expectations—agents be they households, firms, banks or policymakers know your model. PI (or FI) means agents observe or can infer the current and past state variables in your model. RE + PI (or FIRE) is a strong assumption. The purpose of this survey is to examine the literature that relaxes RE or PI or both. This is relevant for DSGE models in general, but particularly so for the efficacy of monetary policy in a New Keynesian environment when the expectation by agents of future policy is of crucial importance. JEL Classification : C11, C18, C32, E32

Suggested Citation

  • Paul Levine & Joseph Pearlman & Bo Yang & Son Pham, 2025. "Recent Developments in DSGE Modelling: Beyond FIRE," South Asian Journal of Macroeconomics and Public Finance, , vol. 14(1), pages 11-43, June.
    • Handle: RePEc:sae:smppub:v:14:y:2025:i:1:p:11-43
    DOI: 10.1177/22779787251343477
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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