ENSAE Paris - École d'ingénieurs pour l'économie, la data science, la finance et l'actuariat

Information and Expectations in Macroeconomics


This course provides an introduction to the literature on dispersed infromation in Macroeconomics. We will review the basic techniques of signal extraction in Gaussian environments. Then, we will apply them to Beauty Contest models to study how imperfect information can affect welfare. We will study a benchmark version of the Lucas' island model to demonstrate how dispersed signals can be microfounded as competitive prices. Finally we will use our framework of learning from prices to provide simple models of price rigidity, endogenous persistence and sentiments. (Slides available upon request).


I Basics

Gaussian Signal Extraction 

  • Rational expectations 
  • Gaussian distributions 
  • Orthogonality conditions

Measuring Information Acquisition 

  • Priors, precisions, posteriors
  • News or noise? 
  • Entropy and mutual Information
  • Rational inattention: principles

Kalman Filter Logic

  • Reducing the state space of inference
  • Recursive expressions
  • Multidimensional KF

Endogenous Signals

  • Prices as signals about expectations
  • On the (im)possibility of information aggregation
  • Informational externalities

II Learning from Prices and the Business Cycle

Beauty Contest and Welfare 

  • Private vs public Information
  • (In)Efficient shocks
  • (In)Efficient coordination

Endogenous Rigid Prices

  • The Lucas' island model
  • A simple model of cross-sectional allocation
  • A fully microfounded economy

Sentiments and Amplification

  • An anatomy of demand shocks
  • Models of Sentiments 
  • Theories of demand shocks

Forward Looking dynamics

  • The New Keynesian model
  • News and endogenous persistence