Incomplete information can lessen the effect of shocks, paper finds
Economic agents are unable to distinguish between permanent and transitory terms of trade shocks – leading to more macroeconomic volatility than if they could tell them apart, according to a new discussion paper from a researcher at the Reserve Bank of Australia.
In Terms of Trade Shocks and Incomplete Information, Daniel Rees sets up a small open economy model in which agents have imperfect information about the persistence of terms of trade shocks, and estimates the parameters of the model
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