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Intersectoral Linkages, Diverse Information, and Aggregate Dynamics in a Neoclassical Model

Author

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  • Ryan Chahrour

    (Boston College and Toulouse School of Economics)

  • Manoj Atolia

    (Florida State University)

Abstract

What do firms learn from their interactions in markets, and what are the implications for aggregate dynamics? We address this question in a multi-sector real-business cycle model with a sparse input-output structure. In each sector, firms observe their own productivity, along with the prices of their inputs and the price of their output. We show that general equilibrium market-clearing conditions constrain average expectations and characterize a set of cases where average expectations, and therefore average dynamics, are exactly those of the full-information model. This "aggregate irrelevance" of information can occur even when sectoral expectations and dynamics are quite different under partial information, and despite the fact that each sector represents a non-negligible portion of the overall economy. Using sectoral data from the United States, we show that the conditions for aggregate irrelevance of information are far from being met in practice, yet the aggregate dynamics of the model calibrated to match US data remain nearly identical to the model under full-information.

Suggested Citation

  • Ryan Chahrour & Manoj Atolia, 2015. "Intersectoral Linkages, Diverse Information, and Aggregate Dynamics in a Neoclassical Model," 2015 Meeting Papers 398, Society for Economic Dynamics.
  • Handle: RePEc:red:sed015:398
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    References listed on IDEAS

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    Cited by:

    1. Robert Ulbricht & Ludwig Straub, 2015. "Endogenous Uncertainty and Credit Crunches," 2015 Meeting Papers 199, Society for Economic Dynamics.
    2. Romain Baeriswyl & Camille Cornand & Bruno Ziliotto, 2016. "Observing and shaping the market: the dilemma of central banks," Working Papers 1623, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    3. Gaetano Gaballo, 2016. "Rational Inattention to News: The Perils of Forward Guidance," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(1), pages 42-97, January.

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