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Imperfect Information and Aggregate Supply

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  • N. Gregory Mankiw

    ()
    (Harvard University - Department of Economics)

  • Ricardo Reis

    ()
    (Columbia University - Department of Economics)

Abstract

This paper surveys the research in the past decade on imperfect information models of aggregate supply and the Phillips curve. This new work has emphasized that information is dispersed and disseminates slowly across a population of agents who strategically interact in their use of information. We discuss the foundations on which models of aggregate supply rest, as well as the micro?foundations for two classes of imperfect information models: models with partial information, where agents observe economic conditions with noise, and models with delayed information, where they observe economic conditions with a lag. We derive the implications of these two classes of models for: the existence of a non?vertical aggregate supply, the persistence of the real effects of monetary policy, the difference between idiosyncratic and aggregate shocks, the dynamics of disagreement, and the role of transparency in policy. Finally, we present some of the topics on the research frontier in this area.

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Bibliographic Info

Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 0910-11.

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Date of creation: 2010
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Handle: RePEc:clu:wpaper:0910-11

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  1. Akerlof, George A., 2001. "Behavioral Macroeconomics and Macroeconomic Behavior," Nobel Prize in Economics documents 2001-4, Nobel Prize Committee.
  2. Mark Zbaracki & Mark Ritson & Daniel Levy & Shantanu Dutta & Mark Bergen, 2004. "Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets," Macroeconomics 0402020, EconWPA.
  3. Olivier Coibion & Yuriy Gorodnichenko, 2008. "What Can Survey Forecasts Tell Us About Informational Rigidities?," NBER Working Papers 14586, National Bureau of Economic Research, Inc.
  4. Kurt F. Lewis, 2008. "The two-period rational inattention model: accelerations and analyses," Finance and Economics Discussion Series 2008-22, Board of Governors of the Federal Reserve System (U.S.).
  5. Dixon, Huw & Kara, Engin, 2006. "How to Compare Taylor and Calvo Contracts: A Comment on Michael Kiley," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 1119-1126, June.
  6. Hellwig, Christian & Veldkamp, Laura, 2007. "Knowing What Others Know: Coordination Motives in Information Acquisition," CEPR Discussion Papers 6506, C.E.P.R. Discussion Papers.
  7. Doepke Joerg & Dovern Jonas & Fritsche Ulrich & Slacalek Jiri, 2008. "The Dynamics of European Inflation Expectations," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-23, March.
  8. Atsushi Inoue & Lutz Kilian & Fatma Burcu Kiraz, 2009. "Do Actions Speak Louder Than Words? Household Expectations of Inflation Based on Micro Consumption Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(7), pages 1331-1363, October.
  9. Yulei Luo, 2008. "Consumption Dynamics under Information Processing Constraints," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(2), pages 366-385, April.
  10. Jonas Dovern & Joerg Doepke & Ulrich Fritsche & Jirka Slacalek, 2006. "Sticky Information Phillips Curves: European Evidence," Macroeconomics and Finance Series 200604, Hamburg University, Department Wirtschaft und Politik.
  11. Andrew Ang & Geert Bekaert & Min Wei, 2006. "Do macro variables, asset markets, or surveys forecast inflation better?," Finance and Economics Discussion Series 2006-15, Board of Governors of the Federal Reserve System (U.S.).
  12. Mackowiak, Bartosz Adam & Wiederholt, Mirko, 2010. "Business Cycle Dynamics under Rational Inattention," CEPR Discussion Papers 7691, C.E.P.R. Discussion Papers.
  13. Oleg Korenok & Norman R. Swanson, 2007. "How Sticky Is Sticky Enough? A Distributional and Impulse Response Analysis of New Keynesian DSGE Models," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(6), pages 1481-1508, 09.
  14. Klaus Adam, 2004. "Optimal Monetary Policy with Imperfect Common Knowledge," Econometric Society 2004 North American Winter Meetings 24, Econometric Society.
  15. Dovern, Jonas & Fritsche, Ulrich & Slacalek, Jiri, 2009. "Disagreement among forecasters in G7 countries," Working Paper Series 1082, European Central Bank.
  16. George-Marios Angeletos & Ivan Werning, 2004. "Crises and Prices: Information Aggregation, Multiplicity and Volatility," NBER Working Papers 11015, National Bureau of Economic Research, Inc.
  17. Kenneth Kasa, 2000. "Forecasting the Forecasts of Others in the Frequency Domain," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 726-756, October.
  18. Venky Venkateswaran & Christian Hellwig, 2009. "Setting The Right Prices for the Wrong Reasons," 2009 Meeting Papers 260, Society for Economic Dynamics.
  19. Mauro Roca, 2010. "Transparency and Monetary Policy with Imperfect Common Knowledge," IMF Working Papers 10/91, International Monetary Fund.
  20. Amador, Manuel & Weill, Pierre-Olivier, 2006. "Learning from Private and Public Observation of Other's Actions," MPRA Paper 109, University Library of Munich, Germany.
  21. Khan, Hashmat & Zhu, Zhenhua, 2006. "Estimates of the Sticky-Information Phillips Curve for the United States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(1), pages 195-207, February.
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Citations

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Cited by:
  1. Avichai Snir & Daniel Levy, 2011. "Shrinking Goods and Sticky Prices: Theory and Evidence," Working Papers 2011-03, Department of Economics, Bar-Ilan University.
  2. Monique Reid, 2012. "Inflation Expectations of the Inattentive General Public," Working Papers 08/2012, Stellenbosch University, Department of Economics.
  3. Murphy, Robert G., 2014. "Explaining inflation in the aftermath of the Great Recession," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 228-244.
  4. Eddy Bekkers & Joseph Francois, 2012. "Bilateral Exchange Rates and Jobs," Economics working papers 2012-02, Department of Economics, Johannes Kepler University Linz, Austria.
  5. Waldyr Areosa & Marta Areosa, 2012. "Information (in) Chains: information transmission through production chains," Working Papers Series 286, Central Bank of Brazil, Research Department.
  6. Carrera, César, 2012. "Estimating Information Rigidity using Firms’ Survey Data," Working Papers 2012-004, Banco Central de Reserva del Perú.
  7. Acharya, Sushant, 2010. "Costly Information, Planning Complementarity and the New Keynesian Phillips Curve," MPRA Paper 22514, University Library of Munich, Germany.
  8. Chen, Tao & Gentle, Paul F., 2011. "The Inflation-Unemployment Trade-off and the Significance of the Interest Rate: Some Evidence from United States Data from 1939 through 2007 - Il trade-off tra disoccupazione e inflazione e il ruolo d," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 64(2), pages 153-171.
  9. Waldyr Areosa & Marta Areosa, 2012. "The Signaling Effect of Exchange Rates: pass-through under dispersed information," Working Papers Series 282, Central Bank of Brazil, Research Department.

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