The Effect of Imperfect Information on Aggregate Supply: Case Study the Economy of Iran

Document Type : Scientific paper

Authors

1 Assistant professor, Department of Economics,, Islamic Azad University,, Tonekabon, Branch, Iran

2 Assistant professor, Department of Economics, University of Mazandaran, Babolsar, Iran

Abstract

Since the birth of business cycle theory, economists have always been struggling to examine the nature of the market imperfection. In macroeconomic literature, economists have been looking at whether friction causes the short-run aggregate supply curve to be upward sloping rather than vertical. To illustrate this subject in this paper, we discuss the micro-foundations for two classes of imperfect information models: models with partial information, where agents observe economic conditions with noise, and models with delayed information, where they observe economic conditions with a lag. This paper surveys the research in the past decade on imperfect information models of aggregate supply and the Phillips curve. The data in this article are related to the fixed prices in the year 2011 and run annually from 1966 to 2017 on a per capita basis. Having logarithms taken, the variables are de-traded through Hodrick- Prescott filter. Finally, the calibration of parameters are assessed, variables are simulated and compared with real data. The results show that the introduced model can simulate the impact of shocks on macroeconomic variables. We derive the results of these two classes of models for the existence of non-vertical aggregate supply, a positive aggregate demand shock still leads to an increase in both prices and output, and stronger real and informational rigidities still enhance the response of output and attenuate the response of prices.

Keywords

References

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Macroeconomics Research Letter
Volume 14, Issue 28
April 2020
Pages 261-290

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History

  • Receive Date: 28 July 2019
  • Revise Date: 25 February 2020
  • Accept Date: 06 June 2020

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