TY  - CHAP
AB  - This paper surveys the treatment of expectations in estimated Dynamic Stochastic General Equilibrium (DSGE) macroeconomic models.A recent notable development in the empirical macroeconomics literature has been the rapid growth of papers that build structural models, which include a number of frictions and shocks, and which are confronted with the data using sophisticated full-information econometric approaches, often using Bayesian methods.A widespread assumption in these estimated models, as in most of the macroeconomic literature in general, is that economic agents' expectations are formed according to the Rational Expectations Hypothesis (REH). Various alternative ways to model the formation of expectations have, however, emerged: some are simple refinements that maintain the REH, but change the information structure along different dimensions, while others imply more significant departures from rational expectations.I review here the modeling of the expectation formation process and discuss related econometric issues in current structural macroeconomic models. The discussion includes benchmark models assuming rational expectations, extensions based on allowing for sunspots, news, sticky information, as well as models that abandon the REH to use learning, heuristics, or subjective expectations.
VL  - 28
SN  - 978-1-78190-305-6, 978-1-78190-306-3/0731-9053
DO  - 10.1108/S0731-9053(2012)0000028004
UR  - https://doi.org/10.1108/S0731-9053(2012)0000028004
AU  - Milani Fabio
ED  - Nathan Balke
ED  - Fabio Canova
ED  - Fabio Milani
ED  - Mark A. Wynne
PY  - 2012
Y1  - 2012/01/01
TI  - The Modeling of Expectations in Empirical DSGE Models: A Survey
T2  - DSGE Models in Macroeconomics: Estimation, Evaluation, and New Developments
T3  - Advances in Econometrics
PB  - Emerald Group Publishing Limited
SP  - 3
EP  - 38
Y2  - 2024/09/20
ER  -