Fukač, Martin

Imperfect Knowledge, Expectations, and Monetary Policy Martin Fukac Abstract This dissertation addresses three topics: (i) recent boom of DSGE models popularity, and their use for monetary policy, (ii) imperfect knowledge, and expectations heterogeneity in DSGE models, and (iii) proximity of surveyed inflation expectations and market expectations. In the first chapter, co-authored with Adrian Pagan, we discuss three basic issues in adopting DSGE models for policy making: model design, matching the data, and operational requirements. We begin with a general discussion of the structure of dynamic stochastic general equilibrium (DSGE) models where we investigate issues like (i) the type of restrictions being imposed by DSGE models upon system dynamics, (ii) the implication these models would have for "location parameters", viz. growth rates, and (iii) whether these models can track the long-run movements in variables as well as matching dynamic adjustment. The first chapter further looks at the types of models that have been constructed in central banks for macro policy analysis. We distinguish four generations of these and detail how the emerging current generation, which are often referred to as DSGE models, differs from the previous generations. The last part of the chapter is devoted to a variety of topics...

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