Working Paper: NBER ID: w4687
Authors: Andrew Caplin; John Leahy
Abstract: In this paper we argue that many topics in macroeconomics can be viewed as part of the broader theory of the economics of adjustment. We argue that existing approaches to the economics of adjustment take a very narrow view of the role of information. We outline an approach to this topic that stresses the role of learning and information externalities, and discussed through examples how these concerns alter the qualitative nature of the adjustment process. In particular, there appears to be a general bias towards the underprovision of information in a variety of settings which leads to inefficient adjustment.
Keywords: Adjustment; Information Externalities; Macroeconomics
JEL Codes: E24; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| availability and processing of information (D83) | adjustment process in economics (F32) |
| uncertainty (D89) | gathering information about best uses of resources (Q20) |
| gathering information about best uses of resources (Q20) | adjustment decisions (G11) |
| general bias towards underprovision of information (D83) | inefficient adjustments (D61) |
| uncertainty (D89) | misallocation of resources (D61) |
| learning from observing others (C92) | qualitative nature of adjustments (C20) |