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Incomplete Information in Macroeconomics: Accommodating Frictions in Coordination

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  • George-Marios Angeletos
  • Chen Lian

Abstract

This chapter studies how incomplete information helps accommodate frictions in coordination, leading to novel insights on the joint determination of expectations and macroeconomic outcomes. We review and synthesize recent work on global games, beauty contests, and their applications. We elaborate on the distinct effects of strategic uncertainty relative to fundamental uncertainty. We demonstrate the potential fragility of workhorse macroeconomic models to relaxations of common knowledge; the possibility of operationalizing the notions of “coordination failure” and “animal spirits” in a manner that unifies unique- and multiple-equilibrium models; and the ability of incomplete information to offer a parsimonious explanation of important empirical regularities. We provide a general treatment of these ideas, as well as specific applications in the context of business cycles, financial crises, and asset pricing.

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  • George-Marios Angeletos & Chen Lian, 2016. "Incomplete Information in Macroeconomics: Accommodating Frictions in Coordination," NBER Working Papers 22297, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:22297
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    Cited by:

    1. Camille Cornand & Frank Heinemann, 2018. "Experiments on macroeconomics: methods and applications," Post-Print halshs-01809937, HAL.
    2. repec:eee:matsoc:v:90:y:2017:i:c:p:191-207 is not listed on IDEAS
    3. Giorgio Rampa & Margherita Saraceno, 2018. "Accuracy and Costs of Dispute Resolution with Heterogeneous Consumers. A Conjectural Approach to Mass Litigation," DEM Working Papers Series 155, University of Pavia, Department of Economics and Management.
    4. Nagel, Rosemarie & Bühren, Christoph & Frank, Björn, 2017. "Inspired and inspiring: Hervé Moulin and the discovery of the beauty contest game," Mathematical Social Sciences, Elsevier, vol. 90(C), pages 191-207.
    5. Camille Cornand & Frank Heinemann, 2018. "Experiments on macroeconomics: methods and applications," Working Papers 1810, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    6. George-Marios Angeletos & Chen Lian, 2016. "Forward Guidance without Common Knowledge," NBER Working Papers 22785, National Bureau of Economic Research, Inc.
    7. Guimarães, Bernardo de Vasconcellos & Machado, Caio Henrique & Pereira, Ana Elisa Gonçalves, 2017. "Dynamic coordination with timing frictions: theory and applications," Textos para discussão 461, FGV/EESP - Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
    8. Damien Besancenot & Radu Vranceanu, 2018. "Crowdfunding with overenthusiastic investors : a global game model," Working Papers hal-01718793, HAL.

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    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • G1 - Financial Economics - - General Financial Markets

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