This paper evaluates the empirical performance of a medium-scale DSGE model with agents forming e... more 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)
This paper evaluates the empirical performance of a medium-scale DSGE model with agents forming e... more 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)
We propose a computational model to study (the evolution of) post-secondary education.“Consumers ... more We propose a computational model to study (the evolution of) post-secondary education.“Consumers ” that differ in quality shop around for desirable colleges or universities. “Firms ” that differ in quality signal the availability of their services to desirable students. Colleges and universities, as long as they have capacity, make offers to students that apply and qualify. We study the dynamics and asymptotics for three nested variants of this matching model: the first variant replicates the Vriend (1995) model, the second stratifies both firms and consumers by quality, while the third variant of our model equips some firms additionally with economies of scale. The last variant of our model is motivated by the entry of for-profit providers into some segements of post-secondary education in the USA and empirical evidence that, while traditional nonprofit or state-supported providers of higher education do not have significant economies of scale, the new breed of for-profit providers...
In this paper we study model selection under bounded rationality and the impact of monetary polic... more In this paper we study model selection under bounded rationality and the impact of monetary policy on the equilibrium choice of forecasting models. We use the concept of sparse rationality (developed recently by Gabaix, 2014), where paying attention to all possible variables is costly and agents can choose to over- or under-emphasize particular variables, even fully excluding some of them. Our main question is whether an initially mis-specified equilibrium (the restricted perceptions equilibrium, or RPE) is compatible with the equilibrium choice of sparse weights describing the allocation of attention to different variables by the agents inhabiting this RPE. In a simple New Keynesian model, we find that the agents stick to their initial mis-specified AR(1) forecasting model choice when monetary policy is less aggressive or inflation is more persistent. We also identify a region in the parameter space where the agents find it advantageous to pay attention to no variable at all.
In their recent paper, Boldrin and Montes (2005) analyze the “return on human capital investment”... more In their recent paper, Boldrin and Montes (2005) analyze the “return on human capital investment” model and show that if borrowing for education is not possible, then combined public education and pension system that uses lump sum taxes and transfers, can replicate the first—best decentralized allocation achieved in an economy without taxes where borrowing for human capital accumulation (education) is allowed. Taking into account that such borrowing is either absent or inefficient in many countries, combined public education/public pensions scheme might prove welfare enhancing. Guided by this theoretical framework, we use it to calibrate the parameters of interconnected pension and education systems for the Czech Republic under different scenarios of demographic and economic development. Both systems are undergoing deep changes, and the study proposed here might prove to be useful in informing policymakers about desirable directions of reforms of the educational and pension systems ...
This paper evaluates the empirical performance of a medium-scale DSGE model with agents forming e... more 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)
This paper evaluates the empirical performance of a medium-scale DSGE model with agents forming e... more 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)
We propose a computational model to study (the evolution of) post-secondary education.“Consumers ... more We propose a computational model to study (the evolution of) post-secondary education.“Consumers ” that differ in quality shop around for desirable colleges or universities. “Firms ” that differ in quality signal the availability of their services to desirable students. Colleges and universities, as long as they have capacity, make offers to students that apply and qualify. We study the dynamics and asymptotics for three nested variants of this matching model: the first variant replicates the Vriend (1995) model, the second stratifies both firms and consumers by quality, while the third variant of our model equips some firms additionally with economies of scale. The last variant of our model is motivated by the entry of for-profit providers into some segements of post-secondary education in the USA and empirical evidence that, while traditional nonprofit or state-supported providers of higher education do not have significant economies of scale, the new breed of for-profit providers...
In this paper we study model selection under bounded rationality and the impact of monetary polic... more In this paper we study model selection under bounded rationality and the impact of monetary policy on the equilibrium choice of forecasting models. We use the concept of sparse rationality (developed recently by Gabaix, 2014), where paying attention to all possible variables is costly and agents can choose to over- or under-emphasize particular variables, even fully excluding some of them. Our main question is whether an initially mis-specified equilibrium (the restricted perceptions equilibrium, or RPE) is compatible with the equilibrium choice of sparse weights describing the allocation of attention to different variables by the agents inhabiting this RPE. In a simple New Keynesian model, we find that the agents stick to their initial mis-specified AR(1) forecasting model choice when monetary policy is less aggressive or inflation is more persistent. We also identify a region in the parameter space where the agents find it advantageous to pay attention to no variable at all.
In their recent paper, Boldrin and Montes (2005) analyze the “return on human capital investment”... more In their recent paper, Boldrin and Montes (2005) analyze the “return on human capital investment” model and show that if borrowing for education is not possible, then combined public education and pension system that uses lump sum taxes and transfers, can replicate the first—best decentralized allocation achieved in an economy without taxes where borrowing for human capital accumulation (education) is allowed. Taking into account that such borrowing is either absent or inefficient in many countries, combined public education/public pensions scheme might prove welfare enhancing. Guided by this theoretical framework, we use it to calibrate the parameters of interconnected pension and education systems for the Czech Republic under different scenarios of demographic and economic development. Both systems are undergoing deep changes, and the study proposed here might prove to be useful in informing policymakers about desirable directions of reforms of the educational and pension systems ...
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