Recessions appear to be times when markets function less efficiently. This phenomenon has been the domain of theories that rely on changes in preferences (demand shocks) or constraints on price-setting (sticky prices). In our simple model of decentralized trade with asymmetric information,...

When a large number of agents play a game with strategic complementarity, information choices exhibit strategic complementarity as well: If an agent wants to do what others do, then they want to know what others know. Likewise, strategic substitutability in actions produces strategic...

The covariance of sectoral and aggregate U.S. output is significantly higher than the covariance of sectoral and aggregate productivity. Explaining this industry comovement is a challenge for business cycle theory. We propose an explanation based on costly information about productivity (TFP)....

Evidence of stock return predictability by financial ratios is still controversial, as documented by inconsistent results for in-sample and out-of-sample regressions and by substantial parameter instability. This paper shows that these seemingly incompatible results can be reconciled if the...