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    Information, heterogeneity and market incompleteness

    Graham, L. and Wright, Stephen (2010) Information, heterogeneity and market incompleteness. Journal of Monetary Economics 57 (2), pp. 164-174. ISSN 0304-3932.

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    Abstract

    Information is “market-consistent” if agents only use market prices to infer the underlying states of the economy. This paper applies this concept to a stochastic growth model with incomplete markets and heterogeneous agents. The economy with market-consistent information can never replicate the full information equilibrium, and there are substantial differences in impulse responses to aggregate productivity shocks. These results are robust to the introduction of a noisy public signal and aggregate financial markets. We argue that the principle of market-consistent information should be applied to any model with incomplete markets.

    Metadata

    Item Type: Article
    Keyword(s) / Subject(s): Imperfect information, higher order expectations, Kalman filter, dynamic general equilibrium
    School: Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Research Centre: Applied Macroeconomics, Birkbeck Centre for
    Depositing User: Administrator
    Date Deposited: 26 Jan 2011 15:57
    Last Modified: 07 Dec 2016 14:53
    URI: http://eprints.bbk.ac.uk/id/eprint/1995

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