Expectations as a source of macroeconomic persistence: Evidence from survey expectations in a dynamic macro model
Journal of Monetary Economics, 2017, vol. 86, issue C, 22-35
Embedding survey expectations in a standard DSGE model helps to identify key slope parameters in standard relationships; dramatically reduces the need for lagged dependent variables, often motivated by price-indexation and habit formation; and obviates the need for autocorrelated structural shocks in the key equations. Formal statistical tests demonstrate that much of the persistence in aggregate data is better accounted for by slow-moving expectations, rather than by habits, indexation and autocorrelated structural shocks.
Keywords: Persistence; Rational expectations; Survey expectations; DSGE models; Habit formation; Indexation (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:86:y:2017:i:c:p:22-35
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