Recent Developments in DSGE Modelling: Beyond FIRE

Paul Levine, Joseph Pearlman, Bo Yang and Son Pham

South Asian Journal of Macroeconomics and Public Finance, 2025, vol. 14, issue 1, 11-43

Abstract: This survey focuses on the standard assumption in DSGE models: rational expectations (RE) with perfect information (PI) aka full information (FI)—hence FIRE. RE means model consistent expectations—agents be they households, firms, banks or policymakers know your model. PI (or FI) means agents observe or can infer the current and past state variables in your model. RE + PI (or FIRE) is a strong assumption. The purpose of this survey is to examine the literature that relaxes RE or PI or both. This is relevant for DSGE models in general, but particularly so for the efficacy of monetary policy in a New Keynesian environment when the expectation by agents of future policy is of crucial importance. JEL Classification : C11, C18, C32, E32

Keywords: Behavioural macroeconomics; imperfect information; heterogeneous expectations (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:sae:smppub:v:14:y:2025:i:1:p:11-43

DOI: 10.1177/22779787251343477

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