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DSGE Models under Imperfect Information: A Dynare-based Toolkit

Author

Listed:
  • Paul Levine

    (University of Surrey and CIMS)

  • Joseph Pearlman

    (City University)

  • Bo Yang

    (Swansea University)

Abstract

This paper describes a Dynare-based toolbox which solves, simulates and estimates DSGE rational expectations (RE) models under perfect or imperfect information on the part of agents. The toolbox also delivers tests and conditions for exact and approximate invertibility providing information as to how well VAR residuals map the structural shocks in the RE solution to the DSGE model. Seven working examples come with the package including a version of the Smets and Wouters (2007) model and a standard small-scale New Keyesian (NK) DSGE model. The estimation exercise is conducted on both the NK and Smets-Wouters models. The paper provides alternative estimation results and an assessment for fundamentalness of structural shocks assuming that RE agents do not observe all current state variables (including shock processes) and only have an imperfect information set. Sections of the paper also examine the impulse response functions and unconditional second moments of the estimated model and discuss endogenous persistence.

Suggested Citation

  • Paul Levine & Joseph Pearlman & Bo Yang, 2020. "DSGE Models under Imperfect Information: A Dynare-based Toolkit," School of Economics Discussion Papers 0520, School of Economics, University of Surrey.
    • Handle: RePEc:sur:surrec:0520
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    File URL: https://repec.som.surrey.ac.uk/2020/DP05-20.pdf
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    Cited by:

    1. Paul Levine & Joseph Pearlman & Stephen Wright & Bo Yang, 2019. "Information, VARs and DSGE Models," School of Economics Discussion Papers 1619, School of Economics, University of Surrey.
    2. Paul Levine & Neil Rickman, 2021. "Optimal Lockdown in an Epidemiological-Macroeconomic Model," School of Economics Discussion Papers 0421, School of Economics, University of Surrey.
    3. Paul Levine & Joseph Pearlman & Alessio Volpicella & Bo Yang, 2022. "The Use and Mis-Use of SVARs for Validating DSGE Models," School of Economics Discussion Papers 0522, School of Economics, University of Surrey.

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