Non-Linear Behavioural New Keynesian Models: Design and Estimation
Creators: name: Arioli, Rodolfo
Publisher: name: University of Surrey
Year: 2023

description: This thesis studies empirical Behavioural New Keynesian (NK) DSGE models that incorporate
description: heterogeneous expectations and reinforcement learning (Brock and Hommes,
description: 1997) to endogenise the distribution of agent types, with a specific focus on the use
description: of higher-order estimation methods to capture the highly non-linear features of the
description: learning mechanism. The thesis is composed of three chapters.<br>
description: <br>
description: Chapter 1 investigates the properties of efficient local Gaussian-based filters for
description: Bayesian posterior inference on the parameters of non-linear DSGE models. A variety
description: of filters is assessed estimating artificial data generated from the simulation of the
description: fifth-order Taylor expansion of a Real Business Cycle (RBC) model: the second-order
description: Extended Kalman filter, a linear Kalman filter applied on the stochastic steady state
description: resulting from a higher-order approximation of the model, and sigma-point filters
description: - such as the Unscented Kalman filter and the Cubature Kalman filter. Results
description: show these filtering techniques represent a valid alternative to the particle filter for
description: problems requiring highly computational efforts.<br>
description: <br>
description: Chapter 2 develops a Behavioural NK model enriched with portfolio adjustment
description: costs to study long-term asset purchases. Adjustment costs on the composition of the
description: households’ financial portfolio allow for bond-market segmentation by introducing a
description: wedge on the yields paid by bonds with different duration. Reinforcement learning
description: combined with bounded-rational agents introduces state-dependent asset-purchases
description: multipliers, by linking policy measures to the sentiment prevailing in the economy.
description: In this framework, policy experiments support the role of asset purchase programs as
description: counter-cyclical measures and emphasize the importance of Central Bank credibility
description: for monetary policy transmission.<br>
description: <br>
description: Chapter 3 estimates a small Behavioural NK model with trend inflation. A formal
description: test for parameters identification shows that core reinforcement learning parameters
description: can only be jointly identified using higher-order approximations of the model while
description: expanding the information set with a measure of the share of agents adopting a
description: specific expectations mechanism. Thus, a proxy for the share of näive agents based
description: on the Survey of Consumer Expectations by the University of Michigan is exploited
description: for estimating the intensity of choice and the memory parameters with the Bayesian
description: non-linear filtering technique selected in Chapter 1 - the second-order Extended
description: Kalman filter. Model estimates outperform a rational expectation counterpart in
description: matching higher-order empirical moments.<br>