Information-driven Business Cycles: A Primal Approach
Ryan Chahrour and
No 17-784, TSE Working Papers from Toulouse School of Economics (TSE)
We develop a methodology to characterize equilibrium in DSGE models, free of parametric restrictions on information. First, we define a “primal” economy in which deviations from full information are captured by wedges in agents' expectations. Then, we provide conditions ensuring some information-structure can implement these wedges. We apply the approach to estimate a business cycle model where firms and households have dispersed information. The estimated model fits the data, attributing the majority of fluctuations to a single shock to households' expectations. The responses are consistent with an implementation in which households become optimistic about local productivities and gradually learn about others' optimism.
Keywords: Business cycles; dispersed information; DSGE models; primal approach; sentiments (search for similar items in EconPapers)
JEL-codes: D84 E32 (search for similar items in EconPapers)
Date: 2017-03, Revised 2017-12
New Economics Papers: this item is included in nep-dge and nep-mac
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Working Paper: Information-driven Business Cycles: A Primal Approach (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:31575
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