Abstract

What are the aggregate consequences of information frictions? We address this question in a multi-sector real business cycle model in which firms learn from market-based information. Theoretically, we present two distinct cases in which the aggregate effects of incomplete information completely disappear: either (i) market-based information reveals sector-level optimal actions, or (ii) market-based information reveals aggregate conditions in the economy. When the model is calibrated to United States' sectoral data, both conditions hold almost exactly and incomplete information has a negligible effect on aggregate dynamics.

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