Business cycle fluctuations and monetary policy under heterogeneous information: A literature review

Romain Baeriswyl, Pierrick Clerc and Camille Cornand

No 2025-16, Working Papers from Swiss National Bank

Abstract: Modelling business cycle fluctuations and the nonneutrality of money is an ongoing challenge for macroeconomists. While the imperfect-information hypothesis developed by Phelps and Lucas in the 1970s had been abandoned in favour of the sticky-price hypothesis, a recent trend in the literature has put the imperfect-information hypothesis back on the agenda to explain business fluctuations and monetary nonneutrality. The success of this revival lies in the introduction of strategic uncertainty into a framework of heterogeneous information. The present paper presents this macroeconomic framework and provides a brief overview of recent advances in the literature.

Keywords: Heterogeneous information; Strategic complementarities; Higher-order beliefs; Coordination; Beauty-contest; Monetary nonneutrality; Business cycle; Communication policy; Monetary policy (search for similar items in EconPapers)
JEL-codes: C72 D83 E12 E32 E52 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2025
New Economics Papers: this item is included in nep-cba and nep-mon
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