Indeterminacy and Imperfect Information

Elmar Mertens, Christian Matthes and Thomas Lubik
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Thomas Lubik: Federal Reserve Bank of Richmond

No 337, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: 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 in-formed 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 parameters values that imply a unique equilibrium under full information, the limited information rational expectations equilibrium can be indeterminate. In a simple application of our framework to a monetary policy problem we show that limited information on part of the central bank implies indeterminate outcomes even when the Taylor Principle holds.

Date: 2017
New Economics Papers: this item is included in nep-dge, nep-mic and nep-mon
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Related works:
Journal Article: Indeterminacy and Imperfect Information (2023)
Working Paper: Indeterminacy and imperfect information (2020)
Working Paper: Indeterminacy and Imperfect Information (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:337

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