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Imperfect Information and Aggregate Supply

In: Handbook of Monetary Economics

  • Mankiw, N. Gregory
  • Reis, Ricardo

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 microfoundations 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 nonvertical 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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This chapter was published in:
  • Benjamin M. Friedman & Michael Woodford (ed.), 2010. "Handbook of Monetary Economics," Handbook of Monetary Economics, Elsevier, edition 1, volume 3, number 3, January.
  • This item is provided by Elsevier in its series Handbook of Monetary Economics with number 3-05.
    Handle: RePEc:eee:monchp:3-05
    Contact details of provider: Web page: http://www.elsevier.com/wps/find/bookseriesdescription.cws_home/BS_HE/description

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    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.:

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    1. Andrew Ang & Geert Bekaert & Min Wei, 2005. "Do Macro Variables, Asset Markets or Surveys Forecast Inflation Better?," NBER Working Papers 11538, National Bureau of Economic Research, Inc.
    2. Dovern, Jonas & Fritsche, Ulrich & Slacalek, Jiri, 2009. "Disagreement among forecasters in G7 countries," Working Paper Series 1082, European Central Bank.
    3. 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.
    4. Olivier Coibion & Yuriy Gorodnichenko, 2008. "What Can Survey Forecasts Tell Us About Informational Rigidities?," NBER Working Papers 14586, National Bureau of Economic Research, Inc.
    5. Adam, Klaus, 2003. "Optimal monetary policy with imperfect common knowledge," Working Paper Series 0223, European Central Bank.
    6. Christian Hellwig & Laura Veldkamp, 2006. "Knowing what others Know: Coordination motives in information acquisition," 2006 Meeting Papers 361, Society for Economic Dynamics.
    7. 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.
    8. Leon W. Berkelmans, 2008. "Imperfect information and monetary models: multiple shocks and their consequences," Finance and Economics Discussion Series 2008-58, Board of Governors of the Federal Reserve System (U.S.).
    9. Venky Venkateswaran & Christian Hellwig, 2009. "Setting The Right Prices for the Wrong Reasons," 2009 Meeting Papers 260, Society for Economic Dynamics.
    10. 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.
    11. Inoue, Atsushi & Kilian, Lutz & Kiraz, Fatma Burcu, 2006. "Do actions speak louder than words? Household expectations of inflation based on micro consumption data," Discussion Paper Series 1: Economic Studies 2006,26, Deutsche Bundesbank, Research Centre.
    12. George A. Akerlof, 2002. "Behavioral Macroeconomics and Macroeconomic Behavior," American Economic Review, American Economic Association, vol. 92(3), pages 411-433, June.
    13. 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.
    14. 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.
    15. Mauro Roca, 2010. "Transparency and Monetary Policy with Imperfect Common Knowledge," IMF Working Papers 10/91, International Monetary Fund.
    16. Mackowiak, Bartosz Adam & Wiederholt, Mirko, 2010. "Business Cycle Dynamics under Rational Inattention," CEPR Discussion Papers 7691, C.E.P.R. Discussion Papers.
    17. Kurt Lewis, 2009. "The Two-Period Rational Inattention Model: Accelerations and Analyses," Computational Economics, Society for Computational Economics, vol. 33(1), pages 79-97, February.
    18. Yulei Luo, 2005. "Consumption Dynamics under Information Processing Constraints," Macroeconomics 0505011, EconWPA, revised 03 Jun 2005.
    19. Ivan Werning & George-Marios Angeletos, 2005. "Crises and Prices: Information Aggregation, Multiplicity and Volatility," 2005 Meeting Papers 284, Society for Economic Dynamics.
    20. 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.
    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.
    22. Amador, Manuel & Weill, Pierre-Olivier, 2006. "Learning from Private and Public Observation of Other's Actions," MPRA Paper 109, University Library of Munich, Germany.
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