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Working Paper
Not so disconnected: exchange rates and the capital stock
We investigate the link between stochastic properties of exchange rates and differences in capital-output ratios across industrialized countries. To this end, we endogenize capital accumulation within a standard model of exchange rate determination with nontraded goods. The model predicts that currencies of countries that are more systemic for the world economy (countries that face particularly volatile shocks or account for a large share of world GDP) appreciate when the price of traded goods in world markets is high. These currencies are better hedges against consumption risk faced by ...
Working Paper
A Risk-based Theory of Exchange Rate Stabilization
We develop a novel, risk-based theory of the effects of exchange rate stabilization. In our model, the choice of exchange rate regime allows policymakers to make their currency, and by extension, the firms in their country, a safer investment for international investors. Policies that induce a country's currency to appreciate when the marginal utility of international investors is high lower the required rate of return on the country's currency and increase the world-market value of domestic firms. Applying this logic to exchange rate stabilizations, we find a small economy stabilizing its ...
Working Paper
The Social Cost of Near-Rational Investment
We show that the stock market may fail to aggregate information even if it appears to be efficient, and that the resulting decrease in the information content of prices may drastically reduce welfare. We solve a macroeconomic model in which information about fundamentals is dispersed and households make small, correlated errors when forming expectations about future productivity. As information aggregates in the market, these errors amplify and crowd out the information content of stock prices. When prices reflect less information, the conditional variance of stock returns rises, causing an ...
Working Paper
Economic Surveillance using Corporate Text
Full and correct order of authors: Tarek A. Hassan, Stephan Hollander, Aakash Kalyani, Laurence van Lent, Markus Schwedeler, and Ahmed Tahoun. This article applies simple methods from computational linguistics to analyze unstructured corporate texts for economic surveillance. We apply text-as-data approaches to earnings conference call transcripts, patent texts, and job postings to uncover unique insights into how markets and firms respond to economic shocks, such as a nuclear disaster or a geopolitical event---insights that often elude traditional data sources. This method enhances our ...
Working Paper
The Diffusion of New Technologies
We identify phrases associated with novel technologies using textual analysis of patents, job postings, and earnings calls, enabling us to identify four stylized facts on the diffusion of jobs relating to new technologies. First, the development of economically impactful new technologies is geographically highly concentrated, more so even than overall patenting: 56% of the most economically impactful technologies come from just two U.S. locations, Silicon Valley and the Northeast Corridor. Second, as the technologies mature and the number of related jobs grows, hiring spreads geographically. ...
Working Paper
Economic Surveillance using Corporate Text
FULL AND CORRECT ORDER OF AUTHORS: Tarek A. Hassan, Stephan Hollander, Aakash Kalyani, Laurence van Lent, Markus Schwedeler, and Ahmed Tahoun. This article applies simple methods from computational linguistics to analyze unstructured corporate texts for economic surveillance. We apply text-as-data approaches to earnings conference call transcripts, patent texts, and job postings to uncover unique insights into how markets and firms respond to economic shocks, such as a nuclear disaster or a geopolitical event---insights that often elude traditional data sources. This method enhances our ...
Working Paper
A Currency Premium Puzzle
Standard asset pricing models reconcile high equity premia with smooth risk-free rates by inducing an inverse functional relationship between the mean and the variance of the stochastic discount factor. This highly successful resolution to closed-economy asset pricing puzzles is fundamentally problematic when applied to open economies: It requires that differences in currency returns arise almost exclusively from predictable appreciations, not from interest rate differentials. In the data, by contrast, exchange rates are largely unpredictable, and currency returns arise from persistent ...