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Recent Developments in DSGE Modelling: Beyond FIRE

Levine, P., Pearlman, J. ORCID: 0000-0001-6301-3966, Yang, B. & Pham, S. (2025). Recent Developments in DSGE Modelling: Beyond FIRE. South Asian Journal of Macroeconomics and Public Finance, 14(1), pp. 11-43. doi: 10.1177/22779787251343477

Abstract

This survey focuses on the standard assumption in DSGE models: rational expectations (RE) with perfect information (PI) aka full information (FI)—hence FIRE. RE means model consistent expectations—agents be they households, firms, banks or policymakers know your model. PI (or FI) means agents observe or can infer the current and past state variables in your model. RE + PI (or FIRE) is a strong assumption. The purpose of this survey is to examine the literature that relaxes RE or PI or both. This is relevant for DSGE models in general, but particularly so for the efficacy of monetary policy in a New Keynesian environment when the expectation by agents of future policy is of crucial importance.

JEL Classification
: C11, C18, C32, E32

Publication Type: Article
Additional Information: © 2025 The Author(s). This article is distributed under the terms of the Creative Commons Attribution 4.0 License (https://creativecommons.org/licenses/by/4.0/) which permits any use, reproduction and distribution of the work without further permission provided the original work is attributed as specified on the SAGE and Open Access page (https://us.sagepub.com/en-us/nam/open-access-at-sage).
Publisher Keywords: Behavioural macroeconomics, imperfect information, heterogeneous expectations
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HJ Public Finance
Departments: School of Policy & Global Affairs
School of Policy & Global Affairs > Department of Economics
SWORD Depositor:
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