A Likelihood Analysis of Models with Information Frictions

Leonardo Melosi

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: This paper develops a dynamic stochastic general equilibrium model where firms are imperfectly informed. We estimate the model through likelihood-based methods and find that it can explain the highly persistent real effects of monetary disturbances that are documented by a benchmark VAR. The model of imperfect information nests a model of rational inattention where firms optimally choose the variances of signal noise, subject to an information-processing constraint. We present an econometric procedure to evaluate the predictions of this rational inattention model. Implementing this procedure delivers insights on how to improve the fit of rational inattention models.

Keywords: Imperfect common knowledge; rational inattention; Bayesian econometrics; real effects of nominal shocks; VAR identification (search for similar items in EconPapers)
JEL-codes: C32 D8 E3 E5 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2009-02-27
New Economics Papers: this item is included in nep-cba, nep-dge, nep-ecm and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://economics.sas.upenn.edu/sites/default/file ... ng-papers/09-009.pdf (application/pdf)

Related works:
Working Paper: A Likelihood Analysis of Models with Information Frictions (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:pen:papers:09-009

Access Statistics for this paper

More papers in PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania 133 South 36th Street, Philadelphia, PA 19104. Contact information at EDIRC.
Bibliographic data for series maintained by Administrator ().