Bank of Lithuania
September 22 10:30 - 11:30
Vilnius Totorių str. 4

Seminar "Dispersed Information and the Origins of Aggregate Fluctuations" by Domenico Massaro, Catholic University of Milan

Please register by sending an email to [email protected] with your full name, surname and university/work-place until 20 September, 13:00.

Seminar language: English

Abstract:

This paper argues that dispersed information may explain aggregate fluctuations. When agents have incomplete and heterogeneous information, it is optimal to consider the actions of other agents because of the additional information conveyed by these actions. We call the act of using other agents' actions in the individual decision process social learning. This paper shows that social learning aimed at increasing the precision of individual information may lead to aggregate fluctuations. We consider a setting where firms receive independent noisy signals about a common fundamental and can observe other firms' actions through a network of informational links. We show that, when firms can observe each other's decisions, they increase the accuracy of their actions. While reducing volatility at the individual level, social learning may lead to an increase in volatility at the aggregate level depending on the network topology. Moreover, if the network is very asymmetric, aggregate volatility does not decay as predicted by the law of large numbers.

Totorių str. 4, Vilnius
Last update: 30-08-2017