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2015•Unpublished venueRequires access

Aggregation problem in DSGE model

Liansheng Yang, Shu‐Heng Chen, Chia‐Ling Chang, Yi-Heng Tseng

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Abstract

The aim of this paper is investigating the estimation bias of the standard New Keynesian DSGE econometric procedure in an environment comprising heterogeneous and interactive agents. In this case, the standard New Keynesian DSGE econometric procedures may generate spurious evidence in aggregate equations. On simulating the Ising model and processing the standard New Keynesian DSGE econometric procedure with Dynare, dramatic estimation bias is found. Particularly, the IS puzzle is found in the Ising model with different network structures.

About this research paper

What this paper is about

The aim of this paper is investigating the estimation bias of the standard New Keynesian DSGE econometric procedure in an environment comprising heterogeneous and interactive agents. In this case, the standard New Keynesian DSGE econometric procedures may generate spurious evidence in aggregate equations. On simulating the Ising model and processing the standard New Keynesian DSGE econometric procedure with Dynare, dramatic estimation bias is found. Particularly, the IS puzzle is found in the Ising model with different network structures.

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Available abstract

The aim of this paper is investigating the estimation bias of the standard New Keynesian DSGE econometric procedure in an environment comprising heterogeneous and interactive agents. In this case, the standard New Keynesian DSGE econometric procedures may generate spurious evidence in aggregate equations. On simulating the Ising model and processing the standard New Keynesian DSGE econometric procedure with Dynare, dramatic estimation bias is found. Particularly, the IS puzzle is found in the Ising model with different network structures.

Key concepts: Dynamic stochastic general equilibrium, New Keynesian economics, Spurious relationship, Econometric model, Ising model, Econometrics, Economics, Aggregate (composite)

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