Confounding dynamics

• 成果类型: Article
• 署名作者: Rondina, Giacomo; Walker, Todd B.
• 署名单位: University of California System; University of California San Diego; Indiana University System; Indiana University Bloomington
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2021.105251
• 发表日期: 2021
• 关键词: Dispersed information; Confounding dynamics; rational expectations

摘要

In the context of a dynamic model with incomplete information, we isolate a novel mechanism of shock propagation. We term the mechanism confounding dynamics because it arises from agents' optimal signal extraction efforts on variables whose dynamics-as opposed to super-imposed noise-prevents full revelation of information. Employing methods in the space of analytic functions, we are able to obtain analytical characterizations of the equilibria that generalize the celebrated Hansen-Sargent optimal prediction formula. Our main theorem establishes conditions under which confounding dynamics emerge in equilibrium in general settings. We apply our results to a canonical one-sector real business cycle model with dispersed information. In that setting, confounding dynamics is shown to amplify the propagation of a productivity shock, producing hump-shaped impulse response functions. (c) 2021 The Authors. Published by Elsevier Inc. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).