EconPapers    
Economics at your fingertips  
 

Macroeconomic modeling when agents are imperfectly informed

Paul De Grauwe

Discussion Papers from D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy

Abstract: DSGE-models have become important tools of analysis not only in academia but increasingly in the board rooms of central banks. The success of these models has much to do with the coherence of the intellectual framework it provides. The limitations of these models come from the fact that they make very strong assumptions about the cognitive abilities of agents in understanding the underlying model. In this paper we relax this strong assumption. We develop a stylized DSGEmodel in which individuals use simple rules of thumb (heuristics) to forecast the future inflation and output gap. We compare this model with the rational expectations version of the same underlying model. We find that the dynamics predicted by the heuristic model differs from the rational expectations version in some important respects, in particular in their capacity to produce endogenous economic cycles.

Keywords: DSGE-model; imperfect information; heuristics; animal spirits (search for similar items in EconPapers)
JEL-codes: D83 E10 E32 (search for similar items in EconPapers)
Date: 2008-05-31
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://economia.uniparthenope.it/ise/sito/DP/DP_6_2008.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to economia.uniparthenope.it:80 (A connection attempt failed because the connected party did not properly respond after a period of time, or established connection failed because connected host has failed to respond.)

Related works:
Working Paper: Macroeconomic Modeling when Agents are Imperfectly Informed (2008) Downloads
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:prt:dpaper:6_2008

Access Statistics for this paper

More papers in Discussion Papers from D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy Contact information at EDIRC.
Bibliographic data for series maintained by Antonietta Milano ( this e-mail address is bad, please contact ).

 
Page updated 2024-02-21
Handle: RePEc:prt:dpaper:6_2008