This paper addresses the output-price volatility puzzle by studying the interaction of optimal monetary policy and agents' beliefs. We assume that agents choose their information acquisition rate by minimizing a loss function that depends on expected forecast errors and information costs....

This paper explains financial contagion between two independent stock markets by fluctuations in international investors' attention allocation. I model the process of attention allocation that underlies portfolio investment in international markets using rationally inattentive agents. Investors...

How far is the US social insurance system from an efficient system? We answer this question within a model where agents receive idiosyncratic, labor-productivity shocks that are privately observed. When social security and income taxation comprise the social insurance system, the maximum...

We study a multiperiod principal-agent problem with moral hazard in which the agent is required to exert effort only in the initial period of the contract. The effort choice of the agent in this first period determines the conditional distribution of output in the following periods. The paper...

Some consumers fail to observe shrouded product attributes when they buy a new product. For example, an account holder may not know their bank's fee schedule. Firms will choose high shrouded fees and compete to attract consumers with loss-leader base goods: e.g., banks will offer free gifts for...

It is commonly thought that a picture is worth a thousand words. If that is so, one might ask how much data is a piece of advice worth. In other words, if advice is important than we should be able to measure it in two ways: How much data would a rational decision maker be willing to give up in...

We study how the use of judgement or add-factors in macroeconomic forecasting may disturb the set of equilibrium outcomes when agents learn using recursive methods. We isolate conditions under which "exuberance equilibria" exist in standard macroeconomic environments. These equilibria may...