Higher-Order Beliefs, Confidence, and Business Cycles

Huo, Zhen; Takayama, Naoki

doi:10.2139/ssrn.4173060

Cited by 6 publications

(8 citation statements)

References 31 publications

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“…Beaudry and Portier, 2006), or sentiment shocks (e.g. Angeletos and La'O, 2013;Huo and Takayama, 2015) would manifest themselves as shocks to , , as agents react to a positive innovation in sentiment by supplying more labor.…”

Section: Multiple Shocksmentioning

confidence: 99%

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International Comovement in the Global Production Network

Huo,

Levchenko,

Pandalai-Nayar

2024

Review of Economic Studies

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This paper provides a general framework to study the role of production networks in international GDP comovement. We first derive an additive decomposition of bilateral GDP comovement into components capturing shock transmission and shock correlation. We quantify this decomposition in a parsimonious multi-country, multi-sector dynamic network propagation model, using data for the G7 countries over the period 1978-2007. Our main finding is that while the network transmission of shocks is quantitatively important, it accounts for a minority of observed comovement under the estimated range of structural elasticities. Contemporaneous responses to correlated shocks in the production network are more successful at generating comovement than intertemporal propagation through capital accumulation. Extensions with multiple shocks, nominal rigidities, and international financial integration leave our main result unchanged. A combination of TFP and labor supply shocks is quantitatively successful at reproducing the observed international business cycle.

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Section: Multiple Shocksmentioning

confidence: 99%

“…Though reduced-form, it has a variety of "demand shock" microfoundations, such as sentiment shocks (e.g. Angeletos and La'O, 2013;Huo and Takayama, 2015), monetary policy shocks under sticky wages (Galí, Gertler, and López-Salido, 2007;Chari, Kehoe, and McGrattan, 2007), or shocks to working capital constraints (e.g. Neumeyer and Perri, 2005;Mendoza, 2010).…”

mentioning

confidence: 99%

International Comovement in the Global Production Network

Huo,

Levchenko,

Pandalai-Nayar

2024

Review of Economic Studies

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“…2In the closed-economy literature non-fundamental fluctuations arise from innovations to beliefs in incomplete information environments (Lorenzoni, 2009;Angeletos and La'O, 2013;Huo and Takayama, 2015). Indeed, there is abundant empirical evidence that managers are imperfectly aware of the global state (e.g.…”

Section: Theory Our Theoretical Framework Combines a Standard Model O...mentioning

confidence: 99%

“…Our project connects two research programs that so far have had fairly limited contact. The first is the closed-economy literature on the role of imperfect information and noise shocks in the business cycle (a very partial list includes Beaudry and Portier, 2006;Lorenzoni, 2009;Barsky and Sims, 2011;Blanchard, L'Huillier, and Lorenzoni, 2013;Angeletos and La'O, 2013;Nimark, 2014;Benhabib, Wang, and Wen, 2015;Huo and Takayama, 2015;Chahrour and Jurado, 2018;Acharya, Benhabib, and Huo, 2021;Hébert and La'O, 2022;Bybee et al, 2023). While previous literature quantified the role of belief shocks by matching aggregate variables (Angeletos, Collard, and Dellas, 2018), we combine novel news coverage data with cross-country expectations survey data to discipline the information frictions and shocks to beliefs.…”

Section: Empiricsmentioning

confidence: 99%

Noisy Global Value Chains

Bui¹,

Huo²,

Levchenko³

et al. 2022

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We study international propagation of both fundamental and non-fundamental shocks in a global production network model with information frictions. Producers in a sector do not perfectly observe other country-sector fundamentals, and their production decisions depend on their beliefs about worldwide exogenous states as well as other producers' behavior. In this environment, "noise" shocks -errors in the public signals about fundamentals -propagate internationally and generate aggregate fluctuations. Using a novel panel dataset containing the frequencies of country-industry-specific economic news reports by 11 leading newspapers in the G7 plus Spain, we show that greater news coverage is associated with both smaller GDP forecast errors, and less disagreement among forecasters. We use these empirical regularities to discipline the parameters governing the severity of information frictions. We find that noise shocks are a quantitatively important source of international fluctuations. Noise shocks propagate relatively more powerfully to the more distant parts of the network, while TFP shocks propagate less powerfully to the more distant sectors in the presence of informational frictions.

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“…While the literature is mostly theoretical, there are now a few studies with a quantitative focus. In particular, Huo and Takayama (2015a) quantify a version of La'O (2013), andBlanchard, L'Huillier andLorenzoni (2013) estimate a version of Lorenzoni (2009). 1 Our approach is distinguished by our general formulation of incomplete information that does not require an ex-ante stand on which agents are affected by information-frictions, how information is shared in the cross-section of agents, or any other parametric properties of the information structure.…”

Section: Introductionmentioning

confidence: 99%

Robust Predictions for DSGE Models with Incomplete Information

Chahrour

Ulbricht

2023

American Economic Journal: Macroeconomics

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We provide predictions for DSGE models with incomplete information that are robust across information structures. Our approach maps an incomplete-information model into a full-information economy with time-varying expectation wedges and provides conditions that ensure the wedges are rationalizable by some information structure. Using our approach, we quantify the potential importance of information as a source of business cycle fluctuations in an otherwise frictionless model. Our approach uncovers a central role for firm-specific demand shocks in supporting aggregate confidence fluctuations. Only if firms face unobserved local demand shocks can confidence fluctuations account for a significant portion of the US business cycle. (JEL D82, D83, E13, E31, E32)

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Higher-Order Beliefs, Confidence, and Business Cycles

Cited by 6 publications

References 31 publications

International Comovement in the Global Production Network

International Comovement in the Global Production Network

Noisy Global Value Chains

Robust Predictions for DSGE Models with Incomplete Information

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