“Information frictions in macroeconomics: The legacy of Robert E. Lucas, Jr.”

Abstract

This essay honors the contributions of Robert E. Lucas, Jr., to the most important macro problems where informational frictions are relevant today. The first step focuses on two of Lucas’ papers where information frictions play somewhat different roles, zeroing in on the key elements: money, islands, and imperfect information. Each paper is then linked to associated branches of the literature. The second step argues that new technologies have now emerged which make those key elements all the more crucial in the macroeconomics of today. Monetary policy considerations were forefront in Lucas’ mind, and so that is a recurrent theme throughout this essay.