Heterogeneous Information and the Theory of the Business Cycle

  title={Heterogeneous Information and the Theory of the Business Cycle},
  author={Sanford J. Grossman and Laurence Weiss},
  journal={Journal of Political Economy},
  pages={699 - 727}
The inability to observe the money supply and price level has been an essential ingredient of informational based equilibrium models of cycles. Here we assume these data are available but show that heterogeneous information about the productivity of capital can lead to a monetary theory of fluctuations. In equilibrium, each agent's investment depends on the difference between his own productivity and the perceived real rate. In the presence of money demand shocks, the nominal rate is noisy… 
Imperfect Information, Consumers' Expectations and Business Cycles
This paper presents am odel of business cycles driven by shocks to consumers’ expectations regarding aggregate productivity. Agents are hit by heterogeneous productivity shocks, they observe their
Producers’ expectations and the business cycle
This paper isolates the role of expectations on the producers' side. Positive shocks to expectations, which can be due to shocks to producers' private information, transient productivity shocks, or
Income Dispersion, Asymmetric Information and Fluctuations in Market Efficiency
Recessions appear to be times when markets function less efficiently. This phenomenon has been the domain of theories that rely on changes in preferences (demand shocks) or constraints on
Informational Implications of Interest Rate Rules
Returning to a topic first systematically treated by Poole (1970) in a textbook Keynesian model, this paper compares interest rate and money supply rules. Our analysis, by contrast, is conducted
Optimal Price and Inventory Adjustment in an Open-Economy Model of the Business Cycle
This paper develops an open-economy macroeconomic model which can be used to interpret the observed fluctuations in output, inventories,prices,and exchange rates in the medium-sized economies of the
Cross-Regime Evidence of Macroeconomic Rationality
Rational expectations macromodels predict that the short-run effects of monetary shocks on real output (X) should be negatively related across policy regimes to the variability of such shocks. This
Interest Rate Policies and Informational Efficiency
Monetary policy may be implemented either by controlling the nominal money supply or by fixing the nominal interest rates. This paper investigates the effects on available information of both kinds
Unemployment with Observable Aggregate Shocks
A general equilibrium model of optimal employment contracts is developed where firms have better information about labor's marginal product than workers. It is optimal for the wage to be tied to the


Information Aggregation and Policy
The function of monetary policy to alter the informational content of money price signals is examined in a model where traders can observe an economy wide financial signal and a local commodity
A Capital Market in an Equilibrium Business Cycle Model
Previous equilibrium "business cycle" models are extended by the incorporation of an economy-wide capital market. One aspect of this ex-tension is that the relative price that appears in commodity
Intertemporal Substitution and the Business Cycle
The Role for Active Monetary Policy in a Rational Expectations Model
The role of monetary policy as it affects available information is examined in an equilibrium model of the business cycle. Exogenous, uncertain changes in the expected return to capital assets
The Existence of Futures Markets, Noisy Rational Expectations and Informational Externalities
It is a fact that futures markets exist in some commodities and not others. Similarly, contingent commodity contracts of the type described by Debreu do not exist for all commodities in all states of
Comparison of Interwar and Postwar Business Cycles: Monetarism Reconsidered
When monthly data on production, prices, and the money stock are interpreted, via a vector autoregression, as generated by dynamic responses to "surprises" in each of the variables, a remarkable
A Classical Macroeconometric Model for the United States
  • T. Sargent
  • Economics
    Journal of Political Economy
  • 1976
A statistical definition of the natural unemployment rate hypothesis is advanced and tested. A particular illustrative structural macroeconomic model satisfying the definition is set forth and
Further results on the informational efficiency of competitive stock markets