Aggregate fluctuations as an information transmission mechanism

Taub, B. (1989) Aggregate fluctuations as an information transmission mechanism. Journal of Economic Dynamics and Control, 13(1), pp. 113-150. (doi: 10.1016/0165-1889(89)90014-6)

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A model is presented in which individuals attempt to track shocks with a capital-like quantity that is costly to produce and to adjust. The shocks have separate individual-specific and economy-wide components. Individuals do not have direct access to desired information about economy-wide shocks. The information is potentially available from the observation of endogenous aggregates, but because the aggregates are endogenous, there is an informational externality associated with them. Two polar cases are considered. When the desired information is about economy-wide real shocks, as in Townsend (1983), the externality is potentially completely internalized. When the desired information is about purely nominal aggregates, as in Lucas (1973, 1975), aggregate fluctuations are a necessary condition of equilibrium.

Item Type:Articles
Glasgow Author(s) Enlighten ID:Taub, Professor Bart
Authors: Taub, B.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Journal of Economic Dynamics and Control

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