Learning in an estimated medium-scale DSGE model

Sergey Slobodyan and Raf Wouters

Journal of Economic Dynamics and Control, 2012, vol. 36, issue 1, 26-46

Abstract: We evaluate the empirical relevance of learning by private agents in an estimated medium-scale DSGE model. We replace the standard rational expectations assumption in the Smets and Wouters (2007) model by a constant-gain learning mechanism. If agents know the correct structure of the model and only learn about the parameters, both expectation mechanisms produce very similar results, and only the transition dynamics that are generated by specific initial beliefs seem to improve the fit. If, instead, agents use only a reduced information set in forming the perceived law of motion, the implied model dynamics change and, depending on the specification of the initial beliefs, the marginal likelihood of the model can improve significantly. These best-fitting models add additional persistence to the dynamics and this reduces the gap between the IRFs of the DSGE model and the more data-driven DSGE-VAR model. However, the learning dynamics do not systematically alter the estimated structural parameters related to the nominal and real frictions in the DSGE model.

Keywords: Constant-gain adaptive learning; Medium-scale DSGE model; DSGE-VAR (search for similar items in EconPapers)
JEL-codes: C11 D84 E30 E52 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (87)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165188911001217
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Learning in an Estimated Medium-Scale DSGE Model (2009)
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:eee:dyncon:v:36:y:2012:i:1:p:26-46

DOI: 10.1016/j.jedc.2011.01.016

Access Statistics for this article

Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Catherine Liu ().