Volatile policy and private information: The case of monetary shocks (Q5947396)

The authors consider a model of a large number of agents of two kinds: buyers and sellers. Both the buyers and sellers derive utility from two goods: an indivisible good and another divisible good which may be considered as a general consumption. Also, the second good is a random variable with a distribution function being a common knowledge. A seller announces a price and a buyer either accepts the price or rejects it depending on his utility. The decisions depend on available information for buyers and sellers. The mechanism is known to be efficient if either the two parties are symmetrically informed or the buyer is informed and the seller is not. The authors study the model in the presence of asymmetric information and endogenously chosen information structures. The model can account for a phenomenon common in hyperinflations: markets ''close'', with participants' accounts emphasizing the difficulty of forecasting future inflation as the major cause.