Factor analysis in a model with rational expectations
Andreas Beyer (),
Roger Farmer (),
Jerome Henry () and
Econometrics Journal, 2008, vol. 11, issue 2, pages 271-286
DSGE models are characterized by the presence of expectations as explanatory variables. To use these models for policy evaluation, the econometrician must estimate the parameters of expectation terms. Standard estimation methods have several drawbacks, including possible lack or weakness of identification of the parameters, misspecification of the model due to omitted variables or parameter instability, and the common use of inefficient estimation methods. Several authors have raised concerns over the implications of using inappropriate instruments to achieve identification. In this paper, we analyze the practical relevance of these problems and we propose to combine factor analysis for information extraction from large data sets and generalized method of moment to estimate the parameters of systems of forward-looking equations. Using these techniques, we evaluate the robustness of recent findings on the importance of forward-looking components in the equations of a standard New-Keynesian model. Copyright © 2008 The Author(s). Journal compilation © Royal Economic Society 2008
References: Add references at CitEc
Citations View citations in EconPapers (7) Track citations by RSS feed
Downloads: (external link)
http://www.blackwell-synergy.com/doi/abs/10.1111/j.1368-423X.2008.00245.x link to full text (text/html)
Access to full text is restricted to subscribers.
Working Paper: Factor Analysis in a Model with Rational Expectations (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:ect:emjrnl:v:11:y:2008:i:2:p:271-286
Ordering information: This journal article can be ordered from
Access Statistics for this article
Econometrics Journal is currently edited by Richard J. Smith, Oliver Linton, Pierre Perron, Jaap Abbring and Marius Ooms
More articles in Econometrics Journal from Royal Economic Society Contact information at EDIRC.
Series data maintained by Wiley-Blackwell Digital Licensing ().