Abstract
This paper examines the effects of partial information on volatility and on the design of simple feedback rules in a rational expectations context. Previous studies have investigated these effects using small analytical models. Here we employ an empirical two-bloc model derived from the OECD Interlink model. The main conclusions are that when current asset prices are observed, but GDP is observed with a delay, then the effect on volatility is small, compared to the full information case. Likewise the choice of simple feedback rules is little affected, although a non-optimal use of information in their design may lead to a deterioration in performance.
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Currie, D., Levine, P. & Pearlman, J. Partial information and volatility in a two-bloc world. Economics of Planning 24, 13–26 (1991). https://doi.org/10.1007/BF00361112
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DOI: https://doi.org/10.1007/BF00361112