Abstract: How does the additional uncertainty associated with noisy economic
data affect business cycle fluctuations? I use a simple variant of
the neoclassical growth model to show that the answer depends
crucially on the assumed expectationformation capabilities of agents.
Under efficient signal extracting, noisy economic indicators dampen
cyclical volatility. The opposite occurs when agents follow a
simple bounded rational strategy.
Keywords: Volatility, measurement error, signal extraction, expectations, bounded rationality
Full paper (171 KB PDF)
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Last update: October 20, 1999
