10.1017/S1365100520000401">
 

Title

Bayesian estimation of a small-scale new Keynesian model with heterogeneous expectations

Document Type

Article

Publication Date

2020

Department/School

Economics

Publication Title

Macroeconomic Dynamics

Abstract

© 2020 Cambridge University Press. This paper uses Bayesian methods to estimate a small-scale New Keynesian model with heterogeneous expectations (HE). Agents form expectations via Euler equation adaptive learning (AL) and differ by the model they use to forecast. Type A agents use a correctly specified model, while type B and type C agents use misspecified models. Quarterly US data from the pre-Great Moderation and Great Moderation periods are used to jointly estimate the degree of agent heterogeneity, the AL parameters, and the deep model parameters. Results show that the data exhibit significant expectational heterogeneity, and that the HE model fits the data better than a model with homogeneous agent AL.

Link to Published Version

10.1017/S1365100520000401

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