Indeterminacy and Imperfect Information
Thomas Lubik (),
Christian Matthes and
Elmar Mertens ()
No 19-17, Working Paper from Federal Reserve Bank of Richmond
We study equilibrium determination in an environment where two kinds of agents have different information sets: The fully informed agents know the structure of the model and observe histories of all exogenous and endogenous variables. The less informed agents observe only a strict subset of the full information set. All types of agents form expectations rationally, but agents with limited information need to solve a dynamic signal extraction problem to gather information about the variables they do not observe. We show that for parameter values that imply a unique equilibrium under full information, the limited information rational expectations equilibrium can be indeterminate. We illustrate our framework with a monetary policy problem where an imperfectly informed central bank follows an interest rate rule.
Keywords: Limited information; rational expectations; Kalman filter; belief shocks (search for similar items in EconPapers)
JEL-codes: C11 C32 E52 (search for similar items in EconPapers)
Pages: 61 pages
New Economics Papers: this item is included in nep-dge, nep-gth, nep-mac, nep-mic, nep-mon and nep-ore
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Working Paper: Indeterminacy and imperfect information (2020)
Working Paper: Indeterminacy and Imperfect Information (2017)
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