, Volume 40, Issue 3, pp 219-244
Date: 28 Mar 2012

Sequential Action and Beliefs Under Partially Observable DSGE Environments

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Abstract

This paper introduces a classification of DSGEs from a Markovian perspective, and positions the class of Partially Observable Markov Decision Process (POMDP) to the center of a generalization of linear rational expectations models. The analysis of the POMDP class builds on the previous development in dynamic controls for linear system, and derives a solution algorithm by formulating an equilibrium as a fixed point of an operator that maps what we observe into what we believe.