Information, heterogeneity and market incompleteness in the stochastic growth model
AbstractWe provide a microfounded account of imperfect information in the stochastic growth model which dramatically changes the properties of the model. We describe heterogenous households that acquire information about aggregates through their participation in markets. If markets are incomplete, household information will be imperfect. We solve the model taking account of the infinite regress of expectations that this lack of information implies. We derive analytical and numerical results to show that imperfect information can significantly change the properties of the model: under virtually all calibrations the impact response of consumption to a positive aggregate technology shock is negative.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Conference Paper Series with number 0704.
Date of creation: Nov 2007
Date of revision:
Contact details of provider:
Postal: Department of Economics, University of St. Andrews, Fife KY16 9AL
Phone: 01334 462420
Fax: 01334 462444
Web page: http://www.st-andrews.ac.uk/cdma
More information through EDIRC
imperfect information; higher order expectations; Kalman filter; dynamic general equilibrium;
Find related papers by JEL classification:
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-10 (All new papers)
- NEP-DGE-2007-11-10 (Dynamic General Equilibrium)
- NEP-MAC-2007-11-10 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lars E.O. Svensson & Michael Woodford, 2001.
"Indicator Variables for Optimal Policy under Asymmetric Information,"
NBER Working Papers
8255, National Bureau of Economic Research, Inc.
- Svensson, Lars E. O. & Woodford, Michael, 2004. "Indicator variables for optimal policy under asymmetric information," Journal of Economic Dynamics and Control, Elsevier, vol. 28(4), pages 661-690, January.
- Svensson, Lars E. O. & Woodford, Michael, 2001. "Indicator Variables for Optimal Policy under Asymmetric Information," Seminar Papers 689, Stockholm University, Institute for International Economic Studies.
- Yongsung Chang & Sun-Bin Kim, 2003.
"From individual to aggregate labor supply : a quantitative analysis based on a heterogeneous agent macroeconomy,"
03-05, Federal Reserve Bank of Richmond.
- Yongsung Chang & Sun-Bin Kim, 2006. "From Individual To Aggregate Labor Supply: A Quantitative Analysis Based On A Heterogeneous Agent Macroeconomy ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(1), pages 1-27, 02.
- Yongsung Chang & Sun-Bin Kim, 2003. "From Individual to Aggregate Labor Supply: A Quantitative Analysis Based on a Heterogeneous Agent Macroeconomy," Macroeconomics 0307003, EconWPA.
- Pearlman, Joseph G., 1992. "Reputational and nonreputational policies under partial information," Journal of Economic Dynamics and Control, Elsevier, vol. 16(2), pages 339-357, April.
- Campbell, John Y., 1994.
"Inspecting the mechanism: An analytical approach to the stochastic growth model,"
Journal of Monetary Economics,
Elsevier, vol. 33(3), pages 463-506, June.
- John Y. Campbell, 1992. "Inspecting the Mechanism: An Analytical Approach to the Stochastic Growth Model," NBER Working Papers 4188, National Bureau of Economic Research, Inc.
- Campbell, John, 1994. "Inspecting the Mechanism: An Analytical Approach to the Stochastic Growth Model," Scholarly Articles 3196342, Harvard University Department of Economics.
- Edward C. Prescott, 1986.
"Theory ahead of business cycle measurement,"
Federal Reserve Bank of Minneapolis, issue Fall, pages 9-22.
- Prescott, Edward C., 1986. "Theory ahead of business-cycle measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 11-44, January.
- Aoki, Kosuke, 2006.
"Optimal commitment policy under noisy information,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 30(1), pages 81-109, January.
- Pearlman, Joseph & Currie, David & Levine, Paul, 1986. "Rational expectations models with partial information," Economic Modelling, Elsevier, vol. 3(2), pages 90-105, April.
- Brad Baxter & Liam Graham & Stephen Wright, 2007. "The Endogenous Kalman Filter," Birkbeck Working Papers in Economics and Finance 0719, Birkbeck, Department of Economics, Mathematics & Statistics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bram Boskamp).
If references are entirely missing, you can add them using this form.