Information-Aggregation Bias

Marvin Goodfriend

American Economic Review, 1992, vol. 82, issue 3, 508-19

Abstract: Aggregation in the presence of data-processing lags distorts the information content of data, violating orthogonality restrictions that hold at the individual level. Though the phenomenon is general, it is illustrated here for the life-cycle-permanent-income model. Cross-section and pooled-panel data induce information-aggregation bias akin to that in aggregate time series. Calculations show that information aggregation can seriously bias tests of the life-cycle model on aggregate time series, cross-section, and pooled-panel data. Copyright 1992 by American Economic Association.

Date: 1992
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Working Paper: Information-aggregation bias (1991)
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