 Adaptive learning with heterogeneous expectations in an estimated medium-scale New Keynesian modelJournal of Macroeconomics, 2022, vol. 71, issue C Abstract: This paper constructs a medium-scale New Keynesian model with heterogeneous expectations by employing the Euler equation adaptive learning technique. Two agent-types are similar in all ways except in how they form expectations. Agent-type A uses a correctly specified model that is consistent with the minimum state variable (MSV) rational expectations equilibrium solution, while agent-type B uses a misspecified model that omits an important subset of variables in the MSV solution. The model is estimated with Bayesian methods using post-Second World War U.S. data and results show that there is significant expectational heterogeneity in the data and that the heterogeneous expectations model performs better than a homogeneous expectations benchmark model. Furthermore, the model’s dynamics resulting from heterogeneous expectations are analyzed. Keywords: Heterogeneous expectations; Monetary policy; Adaptive learning; Bayesian econometrics; New Keynesian model (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:71:y:2022:i:c:s0164070421000781 DOI: 10.1016/j.jmacro.2021.103379 Access Statistics for this article Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos More articles in Journal of Macroeconomics from Elsevier |
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