Information-driven Business Cycles: A Primal Approach

Chahrour, Ryan and Ulbricht, Robert (2017) Information-driven Business Cycles: A Primal Approach. TSE Working Paper, n. 17-784, Toulouse

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Official URL: http://tse-fr.eu/pub/31575

Abstract

We develop a methodology to characterize equilibrium in DSGE models, free of parametric restrictions on information. First, we define a “primal” economy in which deviations from full information are captured by wedges in agents' expectations. Then, we provide conditions ensuring some information-structure can implement these wedges. We apply the approach to estimate a business cycle model where firms and households have dispersed information. The estimated model fits the data, attributing the majority of fluctuations to a single shock to households' expectations. The responses are consistent with an implementation in which households become optimistic about local productivities and gradually learn about others' optimism.

Item Type: Monograph (Working Paper)
Language: English
Date: March 2017
Place of Publication: Toulouse
Uncontrolled Keywords: Business cycles, dispersed information, DSGE models, primal approach, sentiments
JEL codes: D84 - Expectations; Speculations
E32 - Business Fluctuations; Cycles
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 24 Mar 2017 13:44
Last Modified: 21 Mar 2018 14:39
OAI ID: oai:tse-fr.eu:31575
URI: http://publications.ut-capitole.fr/id/eprint/23262

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