VAR expectations/limited rationality


#1

Hello,

sorry for dumb question (I’am DYNARE-beginner), I need to ask, is it possible to use DYNARE to build DSGE with limited information expectations formation? In particular, I’am interested in VAR expectations (agents use VAR to make expectations about future), something in style of expectations formation in FRB/US model, or if it is possible to combine certain ratio of rational expectations + VAR + rule of thumb households.

Thanks for any advice!

Kind Regards
Jan Žemlička
Faculty of Economics and Public Administration;
University of Economics, Prague


#2

Are you thinking about something along the lines of
http://www.dynare.org/DynareWiki/PartialInformation


#3

Thank you very much!
If I understand it correcly, under this options, agents will still have rational expectations, but they will have limited imput of informations, and hence their decisions can differ.
I was thinking more about something along lines of this: https://www.federalreserve.gov/pubs/bulletin/1997/199704lead.pdf
Is it possible to do this (exact VAR expectations) in DYNARE?


#4

Pure VAR expectations are easy to do. In that case, all expected values in the model, i.e. everything dated t+1, are replaced by a backward-looking process, i.e. become time t or earlier. This makes the model purely backward-looking and easy to solve.


#5

Dear Jan, We are working on these models (PAC and VAR based expectations à la FRB/US). This material is not yet ready and public, but it should be released in a not too distant future.

Best,
Stéphane.


#6

That are great news!
Thank you very much!

Kind Regards
Jan Žemlička
Faculty of Economics and Public Administration;
University of Economics, Prague