Rationality with Applications to Macroeconomic Dynamics.pdf

РОССИЙСКАЯЭКОНОМИЧЕСКАЯШКОЛА N E W E C O N O M I C S C H O O L Imperfect Information and Bounded Rationality with Applications to Macroeconomic Dynamics Alexei Deviatov The New Economic School May 3, 2005 Abstract A few decades ago macroeconomics was a field of its own. Now there is an understanding that macroeconomics should have explicit micro foundations. This project aims to look into several traditional arenas of macroeconomics from the microeconomics standpoint. Specifically, we focus on the role of imperfect information and bounded rationality for the real business cycle, growth, and money. 1 1 Overview For a long time macroeconomics had been a field quite of its own. The em- pirical failures of 1970s have caused a major shift towards understanding of the importance of things, which had long been within the realm of microeco- nomics – things such as information and expectations. Bringing in of the former has reinforced what we now call a neoclassical economics; bringing in of the latter has resulted in a celebrated rational expectations revolution. By now there is a wide understanding of a sheer importance of hav- ing microeconomic foundations in macroeconomic models; indeed, the very boundary between the two fields is now blurred to the point where it is dif- ficult to discern where one field ends and the other begins. Non-walrasian markets, imperfect information, adverse selection, moral hazard, and many other microeconomic developments are now standard ingredients of dynamic general equilibrium macroeconomic models. The hope is that such models will eventually help to reconcile the theory and the empirics of the world around us. This project aims to contribute toward