MISPERCEPTIONS OF INFORMATION SETS AND ECONOMIC PERFORMANCE
1992 Volume 43 Issue 1 Pages 19-32
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1992 Volume 43 Issue 1 Pages 19-32
In this paper we discuss the performance of the economy attainable in a situation where both the monetary authority and the public obtain full information on the exogeneous aggregate shock with the orthodox model of new classical macroeconomists like Lucas (1973). The main result of this paper is that if each economic agent interprets such information as its‘private information, ’the performance of the economy, instead of improving, worsens with the acquisition of the new information. This result has very important implications for the plausibility of Muth's rational expectations hypothesis.
