American Economic Journal: Macroeconomics
no. 1, January 2023
We provide predictions for DSGE models with incomplete information that are robust across information structures. Our approach maps an incomplete-information model into a full-information economy with time-varying expectation wedges and provides conditions that ensure the wedges are rationalizable by some information structure. Using our approach, we quantify the potential importance of information as a source of business cycle fluctuations in an otherwise frictionless model. Our approach uncovers a central role for firm-specific demand shocks in supporting aggregate confidence fluctuations. Only if firms face unobserved local demand shocks can confidence fluctuations account for a significant portion of the US business cycle.
Chahrour, Ryan, and Robert Ulbricht.
"Robust Predictions for DSGE Models with Incomplete Information."
American Economic Journal: Macroeconomics,
Asymmetric and Private Information; Mechanism Design
Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
General Aggregative Models: Neoclassical
Price Level; Inflation; Deflation
Business Fluctuations; Cycles