Research Discussion Papers, Bank of Finland
No 14/2007:
Estimating a small DSGE model under rational and measured expectations: some comparisons
Maritta Paloviita ()
Abstract: Using European panel data and GMM system estimation, we
explore the empirical performance of the standard three-equation New
Keynesian macro model under different informational assumptions. As a
benchmark, we consider the performance of the model under rational
expectations and revised (final) data. Alternatively, instead of imposing
rational expectations hypothesis we use real- time information, ie
Consensus Economics survey data, to generate empirical proxies for
expectations in the model and the current output gap in the Taylor rule. We
demonstrate that, contrary to the assumption of rational expectations, the
errors in measured expectations and real-time current output gaps are
positively autocorrelated. We produce evidence that the use of real-time
variables (including measured expectations) improves the empirical
performance of the New Keynesian model. Relaxation of the rational
expectations hypothesis makes a noticeable difference for the parameters of
the New Keynesian model, especially in the Taylor rule.
Keywords: DSGE model; survey expectations; GMM system estimation; expectations; estimation; (follow links to similar papers)
JEL-Codes: C52; E20; E52; (follow links to similar papers)
30 pages, October 3, 2007
Before downloading any of the electronic versions below
you should read our statement on
copyright.
Download GhostScript
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Full text versions of the paper:
0714netti.pdf 
Download Statistics
Questions (including download problems) about the papers in this series should be directed to Minna Nyman ()
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Programing by
Design by Joachim Ekebom
