Information Dynamics and Macro Fluctuations
The amount of information produced about firms’ productivities and about the quality of collateral backing their loans varies over time. These information dynamics determine the evolution of credit, output and productivity, which feeds back into incentives to produce information. We characterize this intricate dynamic relation. A credit boom happens when information about collateral depreciates. A financial crisis happens when information about collateral is suddenly generated. Information about firms’ individual productivities over credit booms can prevent or tame the crisis, acting as an endogenous macroprudential force.
Published Versions
Kyriakos Chousakos & Gary Gorton & Guillermo Ordoñez, 2023. "Information Dynamics and Macro Fluctuations," American Economic Journal: Macroeconomics, vol 15(4), pages 372-400.