The Lucas imperfect information model with imperfect common knowledge

Takashi Ui ()
Additional contact information
Takashi Ui: Hitotsubashi University

The Japanese Economic Review, 2020, vol. 71, issue 1, No 6, 85-100

Abstract: Abstract In the Lucas imperfect information model, output responds to unanticipated monetary shocks. We incorporate more general information structures into the Lucas model and demonstrate that output also responds to (dispersedly) anticipated monetary shocks if the information is imperfect common knowledge. Thus, the real effects of money consist of the unanticipated part and the anticipated part, and we decompose the latter into two effects, an imperfect common knowledge effect and a private information effect. We then consider an information structure composed of public and private signals. The real effects disappear when either signal reveals monetary shocks as common knowledge. However, when the precision of private information is fixed, the real effects are small not only when a public signal is very precise, but also when it is very imprecise. This implies that a more precise public signal can amplify the real effects and make the economy more volatile.

Keywords: Real effects; Neutrality of money; Iterated expectations; The Lucas model; Imperfect common knowledge (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s42973-019-00003-0 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
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:spr:jecrev:v:71:y:2020:i:1:d:10.1007_s42973-019-00003-0

Ordering information: This journal article can be ordered from
https://www.springer.com/journal/42973

DOI: 10.1007/s42973-019-00003-0

Access Statistics for this article

The Japanese Economic Review is currently edited by Michihiro Kandori

More articles in The Japanese Economic Review from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().