Information, heterogeneity and market incompleteness

Graham, Liam; Wright, Stephen H.

doi:10.1016/j.jmoneco.2009.12.005

Cited by 26 publications

(20 citation statements)

References 35 publications

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“…It is possible to show that the qualitative nature of the equilibrium for the aggregate economy that arises from this non-invertible information set is very close to that of the more complex model analyzed in Graham and Wright (2010), which we discuss further in the next section. The non-invertible information set results in "pseudo-shocks" to capital, of opposite sign to the true technology shock; this in turn induces significant differences in aggregate dynamics.…”

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confidence: 78%

“…30 It appears more reasonable to assume that the information set is "market-consistent" (Graham and Wright, 2010): that agents have information based on the prices in the markets they trade in. Using this assumption, the vector of possible observable aggregate variables is:…”

Section: Example: Information In the Stochastic Growth Modelmentioning

confidence: 99%

“…30 For a discussion of this assumption see Bomfim (2004), Porapakarrm and Young (2008) and Graham and Wright (2010). the two observable variables will be informationally redundant if full information can be replicated.…”

Section: Example: Information In the Stochastic Growth Modelmentioning

confidence: 99%

“…3 For example, Graham and Wright (2010) argue that, in an incomplete markets setting, information should be assumed to be "market-consistent" -i.e. agents only obtain information from the markets they trade in.…”

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confidence: 99%

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Invertible and non-invertible information sets in linear rational expectations models

Baxter

Graham

Wright

2011

Journal of Economic Dynamics and Control

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This is a PDF file of an unedited manuscript that has been accepted for publication. As a service to our customers we are providing this early version of the manuscript. The manuscript will undergo copyediting, typesetting, and review of the resulting galley proof before it is published in its final citable form. Please note that during the production process errors may be discovered which could affect the content, and all legal disclaimers that apply to the journal pertain. 1980). Using a framework that nests linearised DSGE models, we give a number of results useful for the analysis of linear rational expectations models with restricted information sets. We distinguish between instantaneous and asymptotic invertibility, and show that the latter may require significantly less information than the former. We also show that non-invertibility of the information set can have significant implications for the time-series properties of economies. JEL classifications: D80; E32.Keywords: imperfect information; invertibility; rational expectations; fundamental versus nonfundamental time series representations; Kalman filter; dynamic stochastic general equilibrium * We thank Michel Juillard (the Editor) and two anonymous referees for their comments which have greatly improved the paper. We have also benefited from discussions with

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confidence: 78%

Section: Example: Information In the Stochastic Growth Modelmentioning

confidence: 99%

Section: Example: Information In the Stochastic Growth Modelmentioning

confidence: 99%

mentioning

confidence: 99%

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Invertible and non-invertible information sets in linear rational expectations models

Baxter

Graham

Wright

2011

Journal of Economic Dynamics and Control

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“…11 In addition to Nimark's papers, see, for example, Lorenzoni (2009), Angeletos andLa'O (2009, 2010), Graham and Wright (2010), Graham (2011a,b), Melosi (2014) and Kohlhas (2014).…”

Section: Dispersed (That Is Incomplete and Heterogeneous) Informationmentioning

confidence: 99%

Towards a New Keynesian Theory of the Price Level

Barrdear

2015

SSRN Journal

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Modifying the standard New-Keynesian model to replace firms' full information and sticky prices with flexible prices and dispersed information, and imposing mild and plausible restrictions on the monetary authority's decision rule, produces the striking results that (i) there exists a unique and globally stable steady-state rate of inflation, despite the possibility of a lower bound on nominal interest rates; and (ii) in the vicinity of steady-state, the price level is determinate (and not just the rate of inflation), despite the central bank targeting inflation. The specification of firms' signal extraction problem under dispersed information removes the need to make use of Blanchard-Kahn conditions to solve the model, thereby removing the need to adhere to the Taylor principle and consequently circumventing the critique of Cochrane (2011). The model admits a determinate, stable solution with no role for sunspot shocks when the monetary authority responds by less than one-for-one to changes in expected inflation, including under an interest rate peg. An extension to include incomplete information on the part of the central bank permits the consideration of (rational) errors of judgement on the part of policymakers and provides a theoretical basis for inertial policymaking without interest rate smoothing, in support of Rudebusch (2002Rudebusch ( , 2006.

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Numerical Methods for Large-Scale Dynamic Economic Models

Maliar

2014

Handbook of Computational Economics

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Information, heterogeneity and market incompleteness

Cited by 26 publications

References 35 publications

Invertible and non-invertible information sets in linear rational expectations models

Invertible and non-invertible information sets in linear rational expectations models

Towards a New Keynesian Theory of the Price Level

Numerical Methods for Large-Scale Dynamic Economic Models

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