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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26074
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| Title: | Aggregate Shocks or Aggregate Information? Costly Information and
Business Cycle Comovement |
| Authors: | Veldkamp, Laura
Wolfers, Justin |
| Issue Date: | 19-Jan-2007 |
| Series/Report no.: | EC-06-12 |
| Abstract: | Synchronized expansions and contractions across sectors define business
cycles. Yet synchronization is puzzling because productivity across
sectors exhibits weak correlation. While previous work examined
production complementarity, our analysis explores complementarity in
information acquisition. Because information about future productivity
has a high fixed cost of production and a low marginal cost of
replication, sectors can share the cost of acquiring aggregate
information, rather than each paying the full production cost to
forecast their sector-specific productivity. Sectors with common,
aggregate information make highly correlated production choices. By
filtering out sector-specific shocks and transmitting aggregate ones,
information markets amplify business-cycle comovement. |
| URI: | http://hdl.handle.net/2451/26074 |
| Appears in Collections: | Economics Working Papers
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