Research
Working Papers
Measuring Information Frictions with Surveys of Expectations: How Revised Data Bias Estimates (job market paper)
Abstract: I study how data signals of the past affect the prevailing method of estimating information frictions. Existing literature measures the relationship between average forecast errors and forecast updates to estimate the degree of information frictions, or slow response of forecasts to news. I introduce a revised data signal into the noisy information model and find this theoretic relationship now suffers from omitted variable bias and cannot be estimated by OLS. The bias is not due to noise in the signal but due to the dynamic property of the revised data which introduces additional past dependency into forecasts and breaks the Markovian flow of information. I use the model to propose a new specification which corrects the bias. When I estimate the corrected specification on data from the Survey of Professional Forecasters, I find the degree of information frictions is 33\% different from existing estimates on average. I apply my results toward two applications to demonstrate the economic significance of this bias. Under my corrected estimates I find incomplete information theories more closely match the data, while the efficacy of forward guidance as a monetary policy tool is significantly reduced.
The Social Value of Revised Information
Abstract: How does receiving revised information affect social welfare? Using a stylized beauty-contest model with a persistent fundamental I consider a dynamic information framework where agents receive noisy common signals of the current state and the value of the state last period. When strategic complementarities are present, social welfare may be decreasing in the precision of current public information, a result known in the literature for sufficiently high complementarities and precision. I show that welfare behaves differently when public information pertains to the lagged state. Under certain parameterizations, welfare is always decreasing as public precision increases, creating a region where withholding information from the public for one period is welfare improving. When information of the past is less valuable than information of the present, providing a revised signal reduces the loss in welfare due to individuals coordinating. However, a highly precise revised signal cannot overcome the inefficiency from coordination.