Partial Information

Background

A number of recent academic research papers pertaining DSGE models assume that agents are not able to perfectly observe states that define the economy. Thus Pearlman et al. (1986) propose a general framework for introducing information limitations at the point agents form expectations.

Pearlman (1992), Svensson and Woodford (2003) and Svensson and Woodford (2001) use this framework to study optimal monetary policy. Collard and Dellas (2004), Collard and Dellas (2006) investigate empirical issues associated with partial, imperfect information.

Levine et al. (2007) pointed out that most of the DSGE estimation makes asymmetric information assumptions where perfect information about current shocks and other macroeconomic variables is available to the economic agents, but not to the econometricians. Although perfect information on idiosyncratic shocks may be available to economic agents, it is implausible to assume that they have full information on economy-wide shocks.

Current Implementation and Use

The PI version of stoch_simul is invoked using partial_information option.

It uses Dynare varobs statement (New to the stoch_simul model files) in the following way:

For example, the below commands following your model specification:

varobs c n r ;

stoch_simul ( partial_information, irf=30) pi y r;

will instruct stoch_simul to use partial information solver, assume that c,n and r are the observed information set and simulate pi, y and r conditional on the observed information set.

For more information on the PCL solver and its stoch_simul implementation please see Partial_Information_Implementation_in_Dynare.pdf

Future Work

The PI Kalman Filter based estimation and DSGE-VAR modules are still in the development prototype and testing stage. For further exlanation and some of the preliminary (test) results see:

Paul Levine, Joseph Pearlman, George Perendia and Bo Yang, 2010. "Endogenous Persistence in an Estimated DSGE Model under Imperfect Information," CDMA Working Paper Series 1002, Centre for Dynamic Macroeconomic Analysis and Department of Economics Discussion Papers 0310, Department of Economics, University of Surrey. Presented to the 2010 RES Conference, March 2010, University of Surrey.

http://ideas.repec.org/p/san/cdmawp/1002.html