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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.
  • 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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    1. Mark J. Zbaracki & Mark Ritson & Daniel Levy & Shantanu Dutta & Mark Bergen, 2004. "Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 514-533, May.
    2. 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.
    3. 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.
    4. Adam, Klaus, 2003. "Optimal Monetary Policy with Imperfect Common Knowledge," CFS Working Paper Series 2003/12, Center for Financial Studies (CFS).
    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. 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.).
    7. Mackowiak, Bartosz Adam & Wiederholt, Mirko, 2010. "Business Cycle Dynamics under Rational Inattention," CEPR Discussion Papers 7691, C.E.P.R. Discussion Papers.
    8. Olivier Coibion & Yuriy Gorodnichenko, 2008. "What Can Survey Forecasts Tell Us About Informational Rigidities?," NBER Working Papers 14586, National Bureau of Economic Research, Inc.
    9. Jonas Dovern & Ulrich Fritsche & Jiri Slacalek, 2012. "Disagreement Among Forecasters in G7 Countries," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 1081-1096, November.
    10. 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.
    11. Jörg Döpke & Jonas Dovern & Ulrich Fritsche & Jiri Slacalek, 2006. "The Dynamics of European Inflation Expectations," Discussion Papers of DIW Berlin 571, DIW Berlin, German Institute for Economic Research.
    12. Kenneth Kasa, 1995. "Signal extraction and the propagation of business cycles," Working Papers in Applied Economic Theory 95-14, Federal Reserve Bank of San Francisco.
    13. Iván Werning & George-Marios Angeletos, 2006. "Crises and Prices: Information Aggregation, Multiplicity, and Volatility," American Economic Review, American Economic Association, vol. 96(5), pages 1720-1736, December.
    14. Döpke, Jörg & Dovern, Jonas & Fritsche, Ulrich & Slacalek, Jiri, 2008. "Sticky information Phillips curves: European evidence," Working Paper Series 0930, European Central Bank.
    15. Ang, Andrew & Bekaert, Geert & Wei, Min, 2007. "Do macro variables, asset markets, or surveys forecast inflation better?," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1163-1212, May.
    16. 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.
    17. Hellwig, Christian & Veldkamp, Laura, 2007. "Knowing What Others Know: Coordination Motives in Information Acquisition," CEPR Discussion Papers 6506, C.E.P.R. Discussion Papers.
    18. Akerlof, George A., 2001. "Behavioral Macroeconomics and Macroeconomic Behavior," Nobel Prize in Economics documents 2001-4, Nobel Prize Committee.
    19. Mauro Roca, 2010. "Transparency and Monetary Policy with Imperfect Common Knowledge," IMF Working Papers 10/91, International Monetary Fund.
    20. 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.).
    21. Venky Venkateswaran & Christian Hellwig, 2009. "Setting The Right Prices for the Wrong Reasons," 2009 Meeting Papers 260, Society for Economic Dynamics.
    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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