Imperfect Information and Hidden Dynamics

Paul Levine (), Joseph Pearlman, Stephen Wright and Bo Yang
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Bo Yang: Swansea University

No 1223, School of Economics Discussion Papers from School of Economics, University of Surrey

Abstract: In a DSGE rational expectations model, the agents’ assumed information sets are crucial for both the dynamics of the solution and for whether a SVAR econometrician can infer impulse responses to structural shocks. We adopt a heterogeneous agent, incomplete markets general framework where agents have imperfect and idiosyncratic information sets. In the limiting empirically plausible case of extreme heterogeneity, we show that a unique finite state space solution exists taking the same form as a single agent problem. The solution induces higher-order dynamics, hidden both from the agents and the econometrician, that would be absent in a perfect information economy.

JEL-codes: C11 C18 C32 E32 (search for similar items in EconPapers)
Pages: 107 pages
Date: 2023-10
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:sur:surrec:1223

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