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"Information-Aggregation Bias"

Publication Title: Information-Aggregation Bias
Author(s): Marvin Goodfriend

Year: 1992
Published in: The American Economic Review

Topic of the Publication: - Information Goods

Abstract:
Aggregation in the presence of data-processing lags distorts the information content of data, violating orthogonality restrictions that hold at the individual level. Though the phenomenon is general, it is illustrated here for the life-cycle--permanent-income model. Cross-section and pooled-panel data induce information-aggregation bias akin to that in aggregate time series. Calculations show that information aggregation can seriously bias tests of the life-cycle model on aggregate time series, cross-section, and pooled-panel data.
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