Partial Information and Volatility in a Two-Bloc World

David Currie, Paul Levine () and Joseph Pearlman

Economic Change and Restructuring, 1991, vol. 24, issue 1, 13-26

Abstract: This paper examines the effects of partial information on volatility and on the design of simple feedback rules in a rational expectations context. Previous studies have investigated these effects using small analytical models. Here we emply an empirical two-bloc model derived from the OECD Interlink model. The main conclusions are that when current asset prices are observed, but GDP is observed with a delay, then the effect on volatility is small, compared to the full information case. Likewise the choice of simple feedback rules is little affected, although a non-optimal use of information in their design may lead to a deterioration in performance. Copyright 1991 by Kluwer Academic Publishers

Date: 1991
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