The aggregation of dynamic relationships caused by incomplete information

Michael Thornton

Journal of Econometrics, 2014, vol. 178, issue P2, 342-351

Abstract: We consider the aggregation of heterogeneous dynamic equations across a large population, as introduced by Granger (1980), where the dynamics arise because agents face a signal extraction problem caused by incomplete information. This weakens the independence assumptions used previously in the aggregation literature. We show that, under plausible assumptions, the differenced cross-section aggregate shows long term persistence even though every individual micro-series follows a random walk. As an example, estimates of the model’s micro-relations are made using US household panel data.

Keywords: Incomplete information; Aggregation of dynamic relationships; Long memory; Household behaviour (search for similar items in EconPapers)
JEL-codes: C33 C43 D81 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:178:y:2014:i:p2:p:342-351

DOI: 10.1016/j.jeconom.2013.08.032

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