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Economic Quarterly

June 12, 2020

Richmond Fed’s Economic Quarterly Explores the Role of Imperfect Information in Economic Responses

In the latest issue of Economic Quarterly, Andrew Foerster of the San Francisco Fed and Pierre-Daniel Sarte of the Richmond Fed explore the role of imperfect information in the economic behavior of households.

Contrary to standard economic modeling based on the assumption of perfect information, Foerster and Sarte assume that households cannot distinguish between permanent and transitory shocks to the economy. Given that information available to households in the real world is imperfect, their research highlights the possibility of real economic responses based on errors in reading the economic environment rather than actual changes in fundamentals.

This issue of Economic Quarterly also features “Computing Dynamic Heterogeneous-Agent Economies: Tracking the Distribution” by Richmond Fed economist Grey Gordon. Economic Quarterly is a free publication containing economic analysis pertinent to Federal Reserve monetary and banking policy. More information is available at (800) 322-0565 or online.

As part of our nation’s central bank, the Richmond Fed is one of 12 regional Reserve Banks working together with the Board of Governors to support a healthy economy and deliver on our mission to foster economic stability and strength. We connect with community and business leaders across the Fifth Federal Reserve District — including the Carolinas, District of Columbia, Maryland, Virginia, and most of West Virginia — to monitor economic conditions, address issues facing our communities, and share this information with monetary and financial policymakers. We also work with banks to ensure they are operating safely and soundly, supply financial institutions with currency that’s fit for distribution, and provide a safe and efficient way to transfer funds through our nation’s payments system.


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