Imperfect Information and the Business Cycle
Imperfect information has played a prominent role in modern business cycle theory. We assess its importance by estimating the New Keynesian (NK) model under alternative informational assumptions. One version focuses on confusion between temporary and persistent disturbances. Another, on unobserved variation in the inflation target of the central bank. A third on persistent misperceptions of the state of the economy (measurement error). And a fourth assumes perfect information (the standard NK-DSGE version). We find that imperfect information contains considerable explanatory power for business fluctuations. Signal extraction seems to provide a conceptually satisfactory, empirically plausible and quantitatively important business cycle mechanism.
|Date of creation:||2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (618) 8303 5540
Web page: http://www.economics.adelaide.edu.au/
More information through EDIRC
References listed on IDEAS
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.:
- de Walque, G. & Smets, F. & Wouters, R., 2005. "Price setting in General Equilibrium: Alternative Specifications," Computing in Economics and Finance 2005 370, Society for Computational Economics.
- Guido Lorenzoni, 2006.
"A Theory of Demand Shocks,"
NBER Working Papers
12477, National Bureau of Economic Research, Inc.
- Timothy Cogley & Argia M. Sbordone, 2006. "Trend inflation and inflation persistence in the New Keynesian Phillips curve," Staff Reports 270, Federal Reserve Bank of New York.
- Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
- Lippi, Francesco & Neri, Stefano, 2007. "Information variables for monetary policy in an estimated structural model of the euro area," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1256-1270, May.
- Fabrice Collard & Harris Dellas, 2010.
"Monetary Misperceptions, Output, and Inflation Dynamics,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 42(2-3), pages 483-502, 03.
- Collard, Fabrice & Dellas, Harris, 2010. "Monetary Misperceptions, Output and Inflation Dynamics," CEPR Discussion Papers 7644, C.E.P.R. Discussion Papers.
- Fabrice Collard & Harris Dellas, 2009. "Monetary Misperceptions, Output and Inflation Dynamics," School of Economics Working Papers 2009-23, University of Adelaide, School of Economics.
- Dellas, Harris, 2006. "Monetary Shocks and Inflation Dynamics in the New Keynesian Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(2), pages 543-551, March.
- Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
When requesting a correction, please mention this item's handle: RePEc:adl:wpaper:2009-15. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dmitriy Kvasov)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.