Information, heterogeneity and market incompleteness in the stochastic growth model

Liam Graham and Stephen Wright

CDMA Conference Paper Series from Centre for Dynamic Macroeconomic Analysis

Abstract: We provide a microfounded account of imperfect information in the stochastic growth model which dramatically changes the properties of the model. We describe heterogenous households that acquire information about aggregates through their participation in markets. If markets are incomplete, household information will be imperfect. We solve the model taking account of the infinite regress of expectations that this lack of information implies. We derive analytical and numerical results to show that imperfect information can significantly change the properties of the model: under virtually all calibrations the impact response of consumption to a positive aggregate technology shock is negative.

Keywords: imperfect information; higher order expectations; Kalman filter; dynamic general equilibrium (search for similar items in EconPapers)
JEL-codes: D52 D84 E32 (search for similar items in EconPapers)
Date: 2007-11
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:san:cdmacp:0704

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