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Working Paper
Expanded GDP for Welfare Measurement in the 21st Century
The information revolution currently underway has changed the economy in ways that are hard to measure using conventional GDP procedures. The information available to consumers has increased dramatically as a result of the Internet and its applications, and new mobile communication devices have greatly increased the speed and reach of its accessibility. An individual now has an unprecedented amount of information on which to base consumption choices, and the “free” nature of the information provided means that the resulting benefits largely bypass GDP and accrue directly to consumers. ...
Working Paper
Information in Financial Markets : Who Gets It First?
I compare the timing of information acquisition among institutional investors and sell-side analysts, and I show that hedge fund trades predict the direction of subsequent analyst ratings change reports while other investors' trades do not. In addition, hedge funds reverse trades after analyst reports, while other investors follow the analysts. Finally, I show that hedge funds perform best among stocks with high analyst coverage. These results suggest that hedge funds have superior information acquisition skills, and that analysts assist hedge funds in exploiting information acquisition ...
Working Paper
Goods-Market Frictions and International Trade
We present a tractable framework that embeds goods-market frictions in a general equilibrium dynamic model with heterogeneous exporters and identical importers. These frictions arise because it is time consuming and expensive for exporters and importers to meet. We show that search frictions lead to an endogenous fraction of unmatched exporters, alter the gains from trade, endogenize entry costs, and imply that the competitive equilibrium does not generally result in the socially optimal number of searching firms. Finally, ignoring search frictions results in biased estimates of the effect of ...
Working Paper
Mandatory Disclosure and Financial Contagion
This paper analyzes the welfare implications of mandatory disclosure of losses at financial institutions when it is common knowledge that some banks have incurred losses but not which ones. We develop a model that features contagion, meaning that banks not hit by shocks may still suffer losses because of their exposure to banks that are. In addition, we assume banks can profitably invest funds provided by outsiders, but will divert these funds if their equity is low. Investors thus value knowing which banks were hit by shocks to assess the equity of the banks they invest in. We find that when ...
Report
Information Spillovers Within Couples: Evidence from a Sequential Survey of Spouses
Little is known about the extent and drivers of information flow within couples and whether spouses hold aligned expectations about the same outcomes. To provide new evidence, we conduct an online survey of 2,200 middle-aged married couples in the U.S. Our focus is on expectations about Social Security benefits. We first document misalignment in expectations: the correlation between partners’ beliefs about a given spouse’s Social Security benefits is 0.70, well below full agreement. We also show that this imperfect alignment is systematically associated with couple-specific ...
Working Paper
How Public Information Affects Asymmetrically Informed Lenders: Evidence from a Credit Registry Reform
We exploit exogenous variation in the amount of public information available to banks about a firm to empirically evaluate the importance of adverse selection in the credit market. A 2006 reform introduced by the State Bank of Pakistan (SBP) reduced the amount of public information available to Pakistani banks about a firm's creditworthiness. Prior to 2006, the SBP published credit information not only about the firm in question but also (aggregate) credit information about the firm's group (where the group was defined as the set of all firms that shared one or more director with the firm in ...
Working Paper
Asymmetric firm dynamics under rational inattention
We study the link between business failures, markups and business cycle asymmetry in the U.S. economy with a model of optimal firm exit under rational inattention. We show that the model's predictions of lagged, counter-cyclical and positively skewed markups together with counter-cyclical exit rates are consistent with the empirical evidence. Moreover, our model uncovers a new mechanism that links information processing with the business cycle. It predicts counter-cyclical attention to economic conditions consistent with survey evidence.
Working Paper
Is GDP Becoming Obsolete? The 'Beyond GDP' Debate
GDP is a closely watched indicator of the current health of the economy and an important tool of economic policy. It has been called one of the great inventions of the 20th century. It is not, however, a persuasive indicator of individual well-being or economic progress. There have been calls to refocus or replace GDP with a metric that better reflects the welfare dimension. In response, the U.S. agency responsible for the GDP accounts recently launched the GDP and Beyond program. This is by no means an easy undertaking, given the subjective and idiosyncratic nature of much of individual ...
Working Paper
Sovereign Risk and Fiscal Information: A Look at the U.S. State Default of the 1840s
This paper examines how newspaper reporting affects government bond prices during the U.S. state default of the 1840s. Using unsupervised machine learning algorithms, the paper first constructs novel ``fiscal information indices'' for state governments based on U.S. newspapers at the time. The impact of the indices on government bond prices varied over time. Before the crisis, the entry of new western states into the bond market spurred competition: more state-specific fiscal news imposed downward pressure on bond prices for established states in the market. During the crisis, more ...
Working Paper
Information losses in home purchase appraisals
Home appraisals are produced for millions of residential mortgage transactions each year, but appraisals are rarely below the transaction price. We exploit a unique data set to show that the mortgage application process creates an incentive to substitute the transaction price for the true appraised value when the latter is lower. We relate the frequency of information loss (appraisals set equal to transaction price) to market conditions and other factors that plausibly determine the degree of distortion. Information loss in appraisals may increase the procyclicality of housing booms and busts.