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Solving DSGE portfolio choice models with dispersed private information

Author

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  • Tille, Cédric
  • van Wincoop, Eric

Abstract

Noisy rational expectations models, in which agents have dispersed private information and extract information from an endogenous asset price, are widely used in finance. However, these linear partial equilibrium models do not fit well in modern macroeconomics that is based on non-linear dynamic general equilibrium models. We develop a method for solving a DSGE model with portfolio choice and dispersed private information. We combine and extend existing local approximation methods applied to public information DSGE settings with methods for solving noisy rational expectations models in finance with dispersed private information.

Suggested Citation

  • Tille, Cédric & van Wincoop, Eric, 2014. "Solving DSGE portfolio choice models with dispersed private information," Journal of Economic Dynamics and Control, Elsevier, vol. 40(C), pages 1-24.
    • Handle: RePEc:eee:dyncon:v:40:y:2014:i:c:p:1-24
    DOI: 10.1016/j.jedc.2014.01.014
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    References listed on IDEAS

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    Cited by:

    1. Krogstrup, Signe & Tille, Cédric, 2018. "Foreign currency bank funding and global factors," Kiel Working Papers 2104, Kiel Institute for the World Economy (IfW Kiel).
    2. Tille, Cédric & van Wincoop, Eric, 2014. "International capital flows under dispersed private information," Journal of International Economics, Elsevier, vol. 93(1), pages 31-49.

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    More about this item

    Keywords

    Local approximation method; Dispersed information; Private information; Noisy rational expectations model; Dynamic general equilibrium model;
    All these keywords.

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • F30 - International Economics - - International Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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