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Does Inattentiveness Matter for DSGE Modelling? An Empirical Investigation

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  • Chou, Jenyu

    (School of Economics, University of Nottingham Ningbo China)

  • Easaw, Joshy

    (Cardiff Business School)

  • Minford, Patrick

    (Cardiff Business School)

Abstract

The purpose of this paper is to investigate the empirical performance of the standard New Keynesian dynamic stochastic general equilibrium (DSGE) model in its usual form with full-information rational expectations and compare it with versions assuming inattentiveness- namely sticky information and imperfect information data revision. Using a Bayesian estimation approach on US quarterly data (both realtime and survey) from 1969 to 2015, we find that the model with sticky information fits best and is the only one that can generate the delayed responses observed in the data. The imperfect information data revision model is improved fits better when survey data is used in place of real-time data, suggesting that it contains extra information.

Suggested Citation

  • Chou, Jenyu & Easaw, Joshy & Minford, Patrick, 2021. "Does Inattentiveness Matter for DSGE Modelling? An Empirical Investigation," Cardiff Economics Working Papers E2021/35, Cardiff University, Cardiff Business School, Economics Section.
    • Handle: RePEc:cdf:wpaper:2021/35
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    References listed on IDEAS

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Does Inattentiveness Matter for DSGE Modelling? An Empirical Investigation
      by Christian Zimmermann in NEP-DGE blog on 2022-01-12 23:47:59

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    Cited by:

    1. Meyer-Gohde, Alexander & Tzaawa-Krenzler, Mary, 2023. "Sticky information and the Taylor principle," IMFS Working Paper Series 189, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).

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    Keywords

    Forecasting Popular Votes Shares; Electoral Poll; Forecast combination; Hybrid model; Support Vector Machine;
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    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: 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
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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