On the Identification of Diagnostic Expectations: Econometric Insights from DSGE Models

Jinting Guo

Papers from arXiv.org

Abstract: This paper provides the first econometric evidence for diagnostic expectations (DE) in DSGE models. Using the identification framework of Qu and Tkachenko (2017), I show that DE generate dynamics unreplicable under rational expectations (RE), with no RE parameterization capable of matching the autocovariance implied by DE. Consequently, DE are not observationally equivalent to RE and constitute an endogenous source of macroeconomic fluctuations, distinct from both structural frictions and exogenous shocks. From an econometric perspective, DE preserve overall model identification but weaken the identification of shock variances. To ensure robust conclusions across estimation methods and equilibrium conditions, I extend Bayesian estimation with Sequential Monte Carlo sampling to the indeterminacy domain. These findings advance the econometric study of expectations and highlight the macroeconomic relevance of diagnostic beliefs.

Date: 2025-09, Revised 2025-09
New Economics Papers: this item is included in nep-dge and nep-ecm
References: Add references at CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2509.08472 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2509.08472

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().