Aggregate Shocks or Aggregate Information? Costly Information and Business Cycle Comovement
Synchronized expansions and contractions across sectors define business cycles. Yet synchronization is puzzling because productivity across sectors exhibits weak correlation. While previous work examined production complementarity, our analysis explores complementarity in information acquisition. Because information about future productivity has a high fixed cost of production and a low marginal cost of replication, sectors can share the cost to forecast their sector-specific productivity. Sectors with common, aggregate information make highly correlated productions choices. By filtering out sector-specific shocks and transmitting aggregate ones, information markets amplify business-cycle comovement.
A data appendix is available at http://www.nber.org/data-appendix/w12557
This paper was revised on February 2, 2007
Document Object Identifier (DOI): 10.3386/w12557
Published: Veldkamp, Laura & Wolfers, Justin, 2007. "Aggregate shocks or aggregate information? Costly information and business cycle comovement," Journal of Monetary Economics, Elsevier, vol. 54(Supplemen), pages 37-55, September. citation courtesy of
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