IDEAS home Printed from https://ideas.repec.org/a/spr/jecrev/v71y2020i1d10.1007_s42973-019-00003-0.html
   My bibliography  Save this article

The Lucas imperfect information model with imperfect common knowledge

Author

Listed:
  • Takashi Ui

    (Hitotsubashi University)

Abstract

In the Lucas imperfect information model, output responds to unanticipated monetary shocks. We incorporate more general information structures into the Lucas model and demonstrate that output also responds to (dispersedly) anticipated monetary shocks if the information is imperfect common knowledge. Thus, the real effects of money consist of the unanticipated part and the anticipated part, and we decompose the latter into two effects, an imperfect common knowledge effect and a private information effect. We then consider an information structure composed of public and private signals. The real effects disappear when either signal reveals monetary shocks as common knowledge. However, when the precision of private information is fixed, the real effects are small not only when a public signal is very precise, but also when it is very imprecise. This implies that a more precise public signal can amplify the real effects and make the economy more volatile.

Suggested Citation

  • Takashi Ui, 2020. "The Lucas imperfect information model with imperfect common knowledge," The Japanese Economic Review, Springer, vol. 71(1), pages 85-100, January.
    • Handle: RePEc:spr:jecrev:v:71:y:2020:i:1:d:10.1007_s42973-019-00003-0
    DOI: 10.1007/s42973-019-00003-0
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s42973-019-00003-0
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s42973-019-00003-0?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Ui, Takashi, 2016. "Bayesian Nash equilibrium and variational inequalities," Journal of Mathematical Economics, Elsevier, vol. 63(C), pages 139-146.
    2. Hyun Song Shin & Jeffery D. Amato, 2003. "Public and private information in monetary policy models," BIS Working Papers 138, Bank for International Settlements.
    3. van Heumen, R.W.J. & Peleg, B. & Tijs, S.H. & Borm, P.E.M., 1994. "Axiomatic characterizations of solutions for Bayesian games," Other publications TiSEM b16fc7d9-aee7-4f36-95f2-3, Tilburg University, School of Economics and Management.
    4. Nicky J. Welton & Howard H. Z. Thom, 2015. "Value of Information," Medical Decision Making, , vol. 35(5), pages 564-566, July.
    5. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-334, June.
    6. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
    7. Takashi Ui, 2009. "Bayesian potentials and information structures: Team decision problems revisited," International Journal of Economic Theory, The International Society for Economic Theory, vol. 5(3), pages 271-291, September.
    8. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, April.
    9. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
    10. Townsend, Robert M, 1983. "Forecasting the Forecasts of Others," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 546-588, August.
    11. Ui, Takashi & Yoshizawa, Yasunori, 2015. "Characterizing social value of information," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 507-535.
    12. Takashi Ui & Yasunori Yoshizawa, 2013. "Radner's Theorem on Teams and Games with a Continuum of Players," Economics Bulletin, AccessEcon, vol. 33(1), pages 72-77.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Takashi Ui, 2019. "The Lucas Imperfect Information Model with Imperfect Common Knowledge," Working Papers on Central Bank Communication 007, University of Tokyo, Graduate School of Economics.
    2. Ui, Takashi & 宇井, 貴志, 2019. "The Lucas Imperfect Information Model with Imperfect Common Knowledge," Discussion Papers 2019-04, Graduate School of Economics, Hitotsubashi University.
    3. Takashi Ui, 2020. "LQG Information Design," Working Papers on Central Bank Communication 018, University of Tokyo, Graduate School of Economics.
    4. Ui, Takashi, 2016. "Bayesian Nash equilibrium and variational inequalities," Journal of Mathematical Economics, Elsevier, vol. 63(C), pages 139-146.
    5. UI, Takashi & 宇井, 貴志, 2015. "Bayesian Nash Equilibrium and Variational Inequalities," Discussion Papers 2015-08, Graduate School of Economics, Hitotsubashi University.
    6. Takashi Ui, 2022. "Impacts of Public Information on Flexible Information Acquisition," Papers 2204.09250, arXiv.org, revised Apr 2022.
    7. David P. Myatt & Chris Wallace, 2008. "On the Sources and Value of Information: Public Announcements and Macroeconomic Performance," Economics Series Working Papers 411, University of Oxford, Department of Economics.
    8. Camille Cornand & Rodolphe dos Santos Ferreira, 2017. "The social value of information and the competition motive: Price vs. quantity games," Working Papers halshs-01614815, HAL.
    9. Franklin Allen & Stephen Morris & Hyun Song Shin, 2003. "Beauty Contests, Bubbles and Iterated Expectations in Asset Markets," Cowles Foundation Discussion Papers 1406, Cowles Foundation for Research in Economics, Yale University.
    10. Bartosz Mackowiak & Mirko Wiederholt, 2009. "Optimal Sticky Prices under Rational Inattention," American Economic Review, American Economic Association, vol. 99(3), pages 769-803, June.
    11. Pavan, Alessandro & Vives, Xavier, 2015. "Information, Coordination, and Market Frictions: An Introduction," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 407-426.
    12. Adam, Klaus, 2007. "Optimal monetary policy with imperfect common knowledge," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 267-301, March.
    13. Camille Cornand & Rodolphe Dos Santos Ferreira, 2020. "The social value of information and the competition motive: price versus quantity games," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 70(4), pages 1101-1137, November.
    14. Angeletos, G.-M. & Lian, C., 2016. "Incomplete Information in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1065-1240, Elsevier.
    15. Ui, Takashi & Yoshizawa, Yasunori, 2015. "Characterizing social value of information," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 507-535.
    16. Leister, C. Matthew, 2020. "Information acquisition and welfare in network games," Games and Economic Behavior, Elsevier, vol. 122(C), pages 453-475.
    17. Christian Hellwig, "undated". "Monetary Business Cycle Models: Imperfect Information (Review Article, March 2006)," UCLA Economics Online Papers 377, UCLA Department of Economics.
    18. Takashi Ui, 2022. "Optimal and Robust Disclosure of Public Information," Papers 2203.16809, arXiv.org, revised Apr 2022.
    19. Angeletos, George-Marios & Iovino, Luigi & La'O, Jennifer, 2020. "Learning over the business cycle: Policy implications," Journal of Economic Theory, Elsevier, vol. 190(C).
    20. Masaki Miyashita & Takashi Ui, 2023. "LQG Information Design," Papers 2312.09479, arXiv.org, revised Jun 2024.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jecrev:v:71:y:2020:i:1:d:10.1007_s42973-019-00003-0. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.