CEU Electronic Theses and Dissertations, 2025
| Author | Balazs, Tibor |
|---|---|
| Title | Can Persistent Real Rate Beliefs Explain Aggregate Consumption Dynamics? A New-Keynesian DSGE Approach |
| Summary | The Euler equation represents a central piece in modern macroeconomic theory, underlying dynamic stochastic general equilibrium modeling conventionally used by central banks and governments worldwide. Despite its ubiquity, the canonical formulation of the Euler equation provides strikingly poor empirical performance in predicting consumption growth, putting in jeopardy both the empirical and theoretical results delivered by the microeconomics-founded macroeconomics research paradigm. The following thesis proposes a theoretical extension and evaluates the stochastic formulation's implications in a New-Keynesian DSGE framework. The results indicate that belief shocks explain approximately 25 percent of consumption growth dynamics, about 32 percent of inflation dynamics, and capture almost the total variation in policy rate dynamics. |
| Supervisor | Konya, Tamas Istvan |
| Department | Economics MA |
| Full text | https://www.etd.ceu.edu/2025/balazs_tibor.pdf |
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