Disciplining expectations: adding survey expectations in learning models
Learning estimation of DSGE models is becoming a popular alternative to traditional rational expectation estimation. One of the most cited advantages of the introduction of a learning mechanism in DSGE models is that it generates the observed persistence in economic variables such as inflation and output. The evolution of the expectations obtained by learning is, however, not necessarily compatible with direct measurements of expectations such as the ones reported by surveys. I estimate a DSGE model where the expectations generated by the learning mechanism are restricted to be consistent with the dynamic of the surveys expectations. The results show that the standard learning procedure usually overestimates the persistence of the estimated model. The intuition behind these results is that the parameters and expectations estimates used in the learning procedures are designed to match as closely as possible the dynamic of current and past values of the macroeconomic variables included in the model. Therefore, including the dynamic of the surveys expectations in the objective function implies a restriction in the built-in model expectations and hence, less degree of freedoms to match the persistence observed in the actual data.
|Date of creation:||2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
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.:
- Fabio Canova & Luca Gambetti, 2010.
"Do Expectations Matter? The Great Moderation Revisited,"
American Economic Journal: Macroeconomics,
American Economic Association, vol. 2(3), pages 183-205, July.
- Fabio Canova & Luca Gambetti, 2007. "Do expectations matter? The Great Moderation revisited," Economics Working Papers 1084, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2009.
- Canova, Fabio & Gambetti, Luca, 2009. "Do expectations matter? The Great Moderation revisited," CEPR Discussion Papers 7597, C.E.P.R. Discussion Papers.
- 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 - Economics Institute, Prague.
- Raf Wouters & Sergey Slobodyan, 2009. "Estimating a medium–scale DSGE model with expectations based on small forecasting models," 2009 Meeting Papers 654, Society for Economic Dynamics.
- Leduc, Sylvain & Sill, Keith & Stark, Tom, 2007.
"Self-fulfilling expectations and the inflation of the 1970s: Evidence from the Livingston Survey,"
Journal of Monetary Economics,
Elsevier, vol. 54(2), pages 433-459, March.
- Sylvain Leduc & Keith Sill & Tom Stark, 2002. "Self-fulfilling expectations and the inflation of the 1970s: evidence from the Livingston Survey," Working Papers 02-13, Federal Reserve Bank of Philadelphia.
- Rabanal, Pau & Rubio-Ramirez, Juan F., 2005. "Comparing New Keynesian models of the business cycle: A Bayesian approach," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1151-1166, September.
When requesting a correction, please mention this item's handle: RePEc:red:sed009:1140. 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: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.