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American Economic Journal: Macroeconomics: Vol. 4 No. 2 (April 2012)
AEJ: Macro Volume. 4, Issue 2 | 
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AEJ: Macro Forthcoming Articles
Learning in a Medium-Scale DSGE Model with Expectations Based on Small Forecasting Models
Article Citation
Slobodyan, Sergey, and
Raf Wouters. 2012. "Learning in a Medium-Scale DSGE Model with Expectations Based on Small Forecasting Models."
American Economic Journal: Macroeconomics,
4(2): 65-101.
DOI: 10.1257/mac.4.2.65
DOI: 10.1257/mac.4.2.65
Abstract
This paper evaluates the empirical performance of a medium-scale DSGE model with agents forming expectations using small forecasting models updated by the Kalman filter. The adaptive learning model fits the data better than the rational expectations (RE) model. Beliefs about the inflation persistence explain the observed decline in the mean and the volatility of inflation as well as Phillips curve
flattening. Learning about inflation results in lower estimates for the persistence of the exogenous shocks that drive price and wage dynamics in the RE version of the model. Expectations based on small forecasting models are closely related to the survey evidence on inflation expectations. (JEL C53, D83, D84, E13, E17, E31)
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Authors
Slobodyan, Sergey (CERGE-EI, Prague)
Wouters, Raf (National Bank of Belgium and Catholic U Louvain)
Wouters, Raf (National Bank of Belgium and Catholic U Louvain)
JEL Classifications
C53: Forecasting Methods; Simulation Methods
D83: Search; Learning; Information and Knowledge; Communication; Belief
D84: Expectations; Speculations
E13: General Aggregative Models: Neoclassical
E17: General Aggregative Models: Forecasting and Simulation: Models and Applications
E31: Price Level; Inflation; Deflation
D83: Search; Learning; Information and Knowledge; Communication; Belief
D84: Expectations; Speculations
E13: General Aggregative Models: Neoclassical
E17: General Aggregative Models: Forecasting and Simulation: Models and Applications
E31: Price Level; Inflation; Deflation
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