Title: Imperfect information and the business cycle
Authors: Collard, F. ×
Dellas, H.
Smets, Frank #
Issue Date: Oct-2009
Series Title: Journal of Monetary Economics vol:56 issue:supplement pages:S38-S56
Abstract: Imperfect information has played a prominent role in modern business cycle theory. This paper assesses its importance by estimating the new Keynesian (NK) model under alternative informational assumptions. One version focuses on confusion between temporary and persistent disturbances. Another, on unobserved variation in the inflation target of the Central Bank. A third on persistent mis-perceptions of the state of the economy (measurement error). And a fourth assumes perfect information (the standard NK-DSGE version). Imperfect information is found to contain considerable explanatory power for business fluctuations. Signal extraction seems to provide a conceptually satisfactory, empirically plausible and quantitatively important business cycle mechanism.
ISSN: 0304-3932
Publication status: published
KU Leuven publication type: IT
Appears in Collections:Non-KU Leuven Association publications
× corresponding author
# (joint) last author

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