EconPapers    
Economics at your fingertips  
 

Information and volatility

Dirk Bergemann, Tibor Heumann and Stephen Morris

Journal of Economic Theory, 2015, vol. 158, issue PB, 427-465

Abstract: In an economy of interacting agents with both idiosyncratic and aggregate shocks, we examine how the structure of private information influences aggregate volatility. The maximal aggregate volatility is attained in a noise free information structure in which the agents confound idiosyncratic and aggregate shocks, and display excess response to the aggregate shocks, as in Lucas [14]. For any given variance of aggregate shocks, the upper bound on aggregate volatility is linearly increasing in the variance of the idiosyncratic shocks. Our results hold in a setting of symmetric agents with linear best responses and normal uncertainty. We establish our results by providing a characterization of the set of all joint distributions over actions and states that can arise in equilibrium under any information structure. This tractable characterization, extending results in Bergemann and Morris [8], can be used to address a wide variety of questions linking information with the statistical moments of the economy.

Keywords: Idiosyncratic shocks; Aggregate shocks; Volatility; Confounding information; Moment restrictions; Bayes correlated equilibrium (search for similar items in EconPapers)
JEL-codes: C72 C73 D43 D83 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022053114001793
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Information and Volatility (2014) Downloads
Working Paper: Information and Volatility (2014) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:158:y:2015:i:pb:p:427-465

DOI: 10.1016/j.jet.2014.12.002

Access Statistics for this article

Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell

More articles in Journal of Economic Theory from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2025-03-23
Handle: RePEc:eee:jetheo:v:158:y:2015:i:pb:p:427-465