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Efficiency and Policy with Endogenous Learning

Author

Listed:
  • Luigi Iovino

    (Bocconi University)

  • Jennifer La'O

    (Columbia University)

  • George-Marios Angeletos

    (M.I.T.)

Abstract

This paper studies how the endogeneity of information affects the efficiency of the business cycle and the nature of optimal policy. The business cycle is found to be excessively noisy. Optimal taxes and optimal monetary policy are shown to be countercyclical. Such policies incentivize agents to make their choices more sensitive to their idiosyncratic sources of information, which in turn improves the informativeness of market signals and macro statistics.

Suggested Citation

  • Luigi Iovino & Jennifer La'O & George-Marios Angeletos, 2016. "Efficiency and Policy with Endogenous Learning," 2016 Meeting Papers 229, Society for Economic Dynamics.
    • Handle: RePEc:red:sed016:229
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    References listed on IDEAS

    as
    1. George-Marios Angeletos & Alessandro Pavan, 2009. "Policy with Dispersed Information," Journal of the European Economic Association, MIT Press, vol. 7(1), pages 11-60, March.
    2. Ball, Laurence & Gregory Mankiw, N. & Reis, Ricardo, 2005. "Monetary policy for inattentive economies," Journal of Monetary Economics, Elsevier, vol. 52(4), pages 703-725, May.
    3. Guido Lorenzoni, 2010. "Optimal Monetary Policy with Uncertain Fundamentals and Dispersed Information ," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(1), pages 305-338.
    4. Mackowiak, Bartosz & Wiederholt, Mirko, 2011. "Inattention to Rare Events," CEPR Discussion Papers 8626, C.E.P.R. Discussion Papers.
    5. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
    6. Adam, Klaus, 2007. "Optimal monetary policy with imperfect common knowledge," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 267-301, March.
    7. Venky Venkateswaran & Luis Llosa, 2012. "Efficiency With Endogenous Information Choice," 2012 Meeting Papers 660, Society for Economic Dynamics.
    8. Luca Colombo & Gianluca Femminis & Alessandro Pavan, 2014. "Information Acquisition and Welfare," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(4), pages 1438-1483.
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    Citations

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    Cited by:

    1. 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.
    2. Xavier Vives, 2017. "Endogenous Public Information and Welfare in Market Games," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(2), pages 935-963.
    3. George-Marios Angeletos & Chen Lian, 2016. "Incomplete Information in Macroeconomics: Accommodating Frictions in Coordination," NBER Working Papers 22297, National Bureau of Economic Research, Inc.
    4. Saleem Bahaj & Angus Foulis, 2017. "Macroprodential Policy under Uncertainty," International Journal of Central Banking, International Journal of Central Banking, vol. 13(3), pages 119-154, September.

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