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Keywords:Information theory 

Working Paper
Decentralized production and public liquidity with private information

Firms with private information about the outcomes of production under uncertainty may face capital (liquidity) constraints that prevent them from attaining efficient levels of investment in a world with costly and/or imperfect monitoring. As an alternative, we examine the efficiency of a simple pooling scheme designed to provide a public (cooperative) supply of liquidity that results in the first best outcome for economic growth. We show that if, absent aggregate uncertainty, the elasticity of scale of the production technology is sufficiently small, then efficient levels of investment and ...
FRB Atlanta Working Paper , Paper 2000-2

Discussion Paper
Dynamic optimal taxation with private information

We study dynamic optimal taxation in a class of economies with private information. Constrained optimal allocations in these environments are complicated and history-dependent. Yet, we show that they can be implemented as competitive equilibria in market economies supplemented with simple tax systems. The market structure in these economies is similar to that in Bewley (1986): agents supply labor and trade risk-free claims to future consumption, subject to a budget constraint and a debt limit. Optimal taxes are conditioned only on two observable characteristicsan agents accumulated stock of ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 140

Working Paper
On risk, rational expectations, and efficient asset markets

The notion of asset market efficiency -- that market prices "fully reflect" all available information -- requires the operation of mechanisms that rapidly incorporate new information into asset prices. Particularly problematic -- both theoretically and empirically -- has been the case where new information is not widely shared, so-called "strong-form" efficiency. This paper examines the relevance of a mechanism for attaining strong-form efficiency based on knowledgeable investors being willing to take large positions in order to eliminate unexploited profit opportunities. We examine ...
International Finance Discussion Papers , Paper 478

Report
The price is right: updating of inflation expectations in a randomized price information experiment

Understanding the formation of consumer inflation expectations is considered crucial for managing monetary policy. This paper investigates how consumers form and update their inflation expectations using a unique ?information? experiment embedded in a survey. We first elicit respondents? expectations for future inflation either in their own consumption basket or for the economy overall. We then randomly provide a subset of respondents with inflation-relevant information: either past-year food price inflation, or a median professional forecast of next-year overall inflation. Finally, inflation ...
Staff Reports , Paper 543

Report
Estimating a structural model of herd behavior in financial markets

We develop a new methodology for estimating the importance of herd behavior in financial markets. Specifically, we build a structural model of informational herding that can be estimated with financial transaction data. In the model, rational herding arises because of information-event uncertainty. We estimate the model using 1995 stock market data for Ashland Inc., a company listed on the New York Stock Exchange. Herding occurs often and is particularly pervasive on certain days. In an information-event day, on average, 2 percent (4 percent) of informed traders herd-buy (sell). In 7 percent ...
Staff Reports , Paper 561

Journal Article
Information ambiguity: recognizing its role in financial markets

Economic Review , Volume 79 , Issue Jul , Pages 11-21

Conference Paper
Sticky information versus sticky prices: a proposal to replace the New-Keynesian Phillips curve

This paper examines a model of dynamic price adjustment based on the assumption that information disseminates slowly throughout the population. Compared to the commonly used sticky-price model, this sticky-information model displays three related properties that are more consistent with accepted views about the effects of monetary policy. First, disinflations are always contractionary (although announced disinflations are less contractionary than surprise ones). Second, monetary policy shocks have their maximum impact on inflation with a substantial delay. Third, the change in inflation is ...
Proceedings , Issue Jun

Working Paper
Computing moral-hazard problems using the Dantzig-Wolfe decomposition algorithm

Linear programming is an important method for computing solutions to private information problems. The method is applicable for arbitrary specifications of the references and technology. Unfortunately, as the cardinality of underlying sets increases the programs quickly become too large to compute. This paper demonstrates that moral-hazard problems have a structure that allows them to be computed using the Dantzig-Wolfe decomposition algorithm. This algorithm breaks the linear program into subproblems, greatly increasing the size of problems that may be practically computed. Connections to ...
Working Paper , Paper 98-06

Working Paper
Financial market breakdown due to strategy constraints and information asymmetry

This paper demonstrates the relevance of strategy constraints on market makers to the possibility of financial market breakdown when there is information asymmetry between market makers and investors; both the case of competitive market makers and the case of a monopolistic market marker are included. Specifically, the paper discusses three types of strategy constraints on the market makers and their implications for the equilibria. The results call attention to the need for more precise specifications of institutional environments (beyond information asymmetry and the mode of ...
FRB Atlanta Working Paper , Paper 95-18

Working Paper
Information systems for risk management

Risk management information systems are designed to overcome the problem of aggregating data across diverse trading units. The design of an information system depends on the risk measurement methodology that a firm chooses. Inherent in the design of both a risk management information system and a risk measurement methodology is a tradeoff between the accuracy of the resulting measures of risk and the burden of computing them. Technical progress will make this tradeoff more favorable over time, leading firms to implement more accurate methodologies, such as full revaluation of nonlinear ...
International Finance Discussion Papers , Paper 585

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