Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/28331
Authors: 
Graham, Liam
Wright, Stephen
Year of Publication: 
2009
Series/Report no.: 
Kiel Working Paper 1503
Abstract: 
We provide a microfounded account of imperfect information in a dynamic general equilibrium model by describing heterogeneous households that acquire information only through their participation in markets. Thus incomplete markets will imply incomplete information. We solve the model taking full account of the infinite regress of expectations, and show that the properties of the model change dramatically. Under virtually all calibrations the impact response of consumption to a positive aggregate technology shock is negative. If households observe a noisy public signal in addition to the information they obtain from markets, consumption responds to shocks sluggishly.
Subjects: 
Imperfect information
higher order expectations
Kalman Filter
dynamic general equilibrium
JEL: 
D52
D84
E32
Document Type: 
Working Paper

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