Booms and Busts with Dispersed Information

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serval:BIB_A7AD96D2AADB
Type
Article: article from journal or magazin.
Collection
Publications
Institution
Title
Booms and Busts with Dispersed Information
Journal
Journal of Monetary Economics
Author(s)
Benhima K.
ISSN
0304-3932
Publication state
Published
Issued date
2019
Peer-reviewed
Oui
Volume
107
Pages
32-47
Language
english
Abstract
Dispersed information can generate booms and busts in economic activity. Boom-bust dynamics appear when firms are initially over-optimistic about demand due to a noisy private news. Consequently, they overproduce, which generates a boom and depresses their markups. Because the news is private, firms cannot relate these low markups to aggregate optimism. As low markups can also signal low demand, this overturns their expectations, generating a bust. We emphasize a novel role for imperfect common knowledge: dispersed information makes firms ignorant about their competitors’ actions, which makes them confuse high noise-driven supply with low fundamental demand.
Keywords
Imperfect Common Knowledge, Expectations, Recessions
Create date
22/08/2013 14:47
Last modification date
26/05/2020 5:20
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