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Keywords:Information theory 

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 and prices

Information problems pervade the economy. This Commentary describes the challenges they create and the clever solutions markets find to overcome them.
Economic Commentary , Issue May

What moves the bond market?

We take a close look at a year in the U.S. Treasury market and try to explain the sharpest price changes and most active trading episodes. The virtue of our analysis lies in its use of high-frequency data on market movements and accurate release times for a comprehensive set of economic announcements. For the period August 1993 to August 1994, we attribute the 25 largest price moves and 25 greatest trading surges to just-released announcements. The bond market's response to announcements in general is consistent with the way we would expect it to react to new information.
Research Paper , Paper 9706

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
Controlling information premia by repackaging asset backed securities

Finance and Economics Discussion Series , Paper 95-38

Journal Article
Procedures to manage changes to Federal Reserve Information Systems in 1999 and first quarter of 2000

Federal Reserve Bulletin , Issue Dec , Pages 1058-1059

State-dependent pricing under infrequent information: a unified framework

We characterize optimal state-dependent pricing rules under various forms of infrequent information. In all models, infrequent price changes arise from the existence of a lump-sum "menu cost." We entertain various alternatives for the source and nature of infrequent information. In two benchmark cases with continuously available information, optimal pricing rules are purely state-dependent. In contrast, in all environments with infrequent information, optimal pricing rules are both time- and state-dependent, characterized by "trigger strategies" that depend on the time elapsed since ...
Staff Reports , Paper 455

Working Paper
Imperfect state verification and financial contracting

An argument that in a costly state verification model of financial contracting, relaxing the assumption of perfect verification makes the measurement of information difficult.
Working Papers (Old Series) , Paper 9506

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

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


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