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Aggregating Rational Expectations Models in the Presence of Unobserved Micro Heterogeneity

Listed author(s):
  • Eric JONDEAU

    (University of Lausanne and Swiss Finance Institute)

  • Florian PELGRIN

    (U niversity of Lausanne)

Our paper addresses the correction of the aggregation bias in linear rational expectations models when there is some unobserved micro-parameter heterogeneity and only macro data are available. Starting from Lewbel (1994), we propose two new consistent estimators, which rely on a flexible parametric specification of the cross-sectional parameter distributions and account for the dependence across coeffcients inherent in such models. A Monte-Carlo study reveals that the finite-sample and asymptotic properties of the proposed estimators correct the aggregation bias found with the maximum-likelihood and generalized-method-of-moments approaches. As a by-product, we can also infer the cross-sectional distribution of the parameters. Finally, we reassess the empirical evidence about the New Keynesian Phillips curve and explain the apparent discrepancy between micro- and macro-based estimates of the average persistence of inflation.

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Paper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 09-30.

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Length: 57 pages
Date of creation:
Handle: RePEc:chf:rpseri:rp0930
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