Learning in a Medium-Scale DSGE Model with Expectations Based on Small Forecasting Models

Sergey Slobodyan; Raf Wouters

doi:10.1257/mac.4.2.65

journal article Apr 01, 2012

Learning in a Medium-Scale DSGE Model with Expectations Based on Small Forecasting Models

Sergey Slobodyan Raf Wouters

American Economic Journal: Macroeconomics Vol. 4 No. 2 pp. 65-101 · American Economic Association

View at Publisher Save 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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Learning in a Medium-Scale DSGE Model with Expectations Based on Small Forecasting Models

Sergey Slobodyan, Raf Wouters

American Economic Journal: Macroeconomics 10.1257/mac.4.2.65

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Cited By

60

Learning in a Medium-Scale DSGE Model with Expectations Based on Small Forecasting Models

Sergey Slobodyan, Raf Wouters · 2012

American Economic Journal: Macroeco...

Metrics

60

Citations

26

References

Details

Published: Apr 01, 2012
Vol/Issue: 4(2)
Pages: 65-101

Authors

S

Sergey Slobodyan

CERGE-EI, Politickych veznu 7, 111 21 Prague 1, Czech Republic.

R

Raf Wouters

National Bank of Belgium/Université catholique de Louvain, Boulevard de Berlaimont, B-1000 Brussels, Belgium.

Cite This Article

Sergey Slobodyan, 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. https://doi.org/10.1257/mac.4.2.65

Learning in a Medium-Scale DSGE Model with Expectations Based on Small Forecasting Models

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