Graham, L. and Wright, Stephen (2010) Information, heterogeneity and market incompleteness. Journal of Monetary Economics 57 (2), pp. 164-174. ISSN 0304-3932.
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 Faculties and Schools > Faculty of Business and Law > Birkbeck Business School |
| Research Centres and Institutes: | Applied Macroeconomics, Birkbeck Centre for |
| Depositing User: | Administrator |
| Date Deposited: | 26 Jan 2011 15:57 |
| Last Modified: | 02 Aug 2023 16:51 |
| URI: | https://eprints.bbk.ac.uk/id/eprint/1995 |
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