Should policymakers offer forward guidance in terms of a path for an instrument such as interest rates or a target for an outcome such as unemployment? We study how the optimal approach depends on a departure from rational expectations. People have a limited understanding of the behavior of...

We study the efficiency of competitive markets when people are rationally inattentive. Appropriate amendments of the Welfare Theorems hold if attention costs satisfy an invariance condition, which amounts to free disposal of decision-irrelevant aspects of the state of nature. This condition is...

We document a new fact about expectations: in response to the main shocks driving the business cycle, expectations underreact initially but overshoot later on. We show how previous, seemingly conflicting, evidence can be understood as different facets of this fact. We finally explain what the...

We study the macroeconomic implications of viral, belief-altering narratives. Empirically, we use natural-language-processing methods to measure narratives in the text of all US public firms' end-of-year reports (Forms 10-K). We find that: (i) firms' hiring decisions respond strongly to...

An influential hypothesis explaining the persistence of global productivity differences is that frontier technologies are finely tuned to the local conditions of the high-income countries that develop them and inappropriate for application elsewhere. This paper studies how environmental...

This paper studies how innovation reacts to climate change and shapes its economic impacts, focusing on US agriculture. We show in a model that directed innovation can either mitigate or exacerbate climate change's economic damage depending on whether new technology is on average a substitute...

We study a screening model in which agents can under-utilize goods. We characterize implementable and optimal contracts and show that, whenever the principal values usage instrumentally, the optimal menu involves multi-part tariffs with tiers of zero marginal prices. We apply our results to...

Why do markets and central banks systematically hold different beliefs about the path of policy and the economy? I use a simple signal extraction model to contrast predictions based on three mechanisms: asymmetric information, heterogeneous beliefs about the policy rule, and heterogeneous use of...