An Information-Based Explanation for Industry Comovement
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). Because information has a high fixed cost of production and a low marginal cost of replication, information producers charge more for low-demand signals to cover their high average cost. Forecasts of macroeconomic aggregates, relevant to many producers, are cheap; sector-specific forecasts are more expensive. If many managers use the inexpensive aggregate data to infer their industry TFP, their expected industry TFP will be more correlated than true industry TFP. Since hiring and investment decisions depend on expected TFP, they will also be highly correlated. As a result, sectoral output comoves more than TFP alone would predict
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||03 Dec 2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:red:sed006:359. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.