Estimating financial frictions: initial beliefs under learning
Whether they meet face to face or on-line people learn. Not about economics but also about the world they live in. And what they believe matters for what they do. A lot. Our paper was presented at King’s College in London at the CFENetwork conference. The conference focuses on topics containing computational or financial econometric components so our paper fitted like a glove. Unfortunately only virtually, so we could not interact as usual. Still, many useful comments on the paper.
During our virtual trip to London we presented our results on the importance of initial beliefs. We find that initial beliefs can matter for the evolution of beliefs, for the decisions people make, and for the economy. We show that this result holds not only in a small/toy macro model but also in a more general data-driven model. In the latter, we also show how modeling people’s expectations explicitly affect parameter estimates.