This paper combines a data-rich environment with machine learning algorithm to provide new estimates of time-varying systematic expectational errors (“belief distortions”) embedded in survey responses. We find sizable distortions even for professional forecasters, all respondent-types overweighting the implicit judgmental component their forecasts relative what can be learned from publicly avai...

We study optimal time-consistent monetary and fiscal policy in a New Keynesian model where occasional declines agents’ confidence give rise to persistent liquidity trap episodes. Insights from widely studied fundamental-driven traps are not useful guide for enhancing welfare this model. Raising the inflation target, appointing an inflation-conservative central banker, or allowing use of governm...

Abstract We illustrate the role of left tail dependence—left mean (LTM)—in equity risk premium (ERP) predictability. LTM measures average pairwise dependency among major sectors incorporating shocks imperceptible at aggregate level. LTM, as well variance premium, significantly predicts ERP in and out sample, which is not case with commonly used predictors. find this predictability result procyc...

In liability lawsuits (e.g., patent infringement), a plaintiff demands compensation from defendant, and the parties often negotiate settlement to avoid costly trial. Liability insurance creates bargaining leverage for defendant in this negotiation. We study characteristics of monopoly equilibrium contracts settings where effect is substantial source value insurance. Our results show that under ...

Health insurers increasingly compete on their networks of medical providers. Using data from Massachusetts’s insurance exchange, I find substantial adverse selection against plans covering the most prestigious and expensive “star” hospitals. highlight a theoretically distinct channel: consumers loyal to star hospitals incur high spending, conditional state, because they use these hospitals’ car...

We develop a deep learning model to detect emotions embedded in press conferences after the Federal Open Market Committee meetings and examine influence of detected on financial markets. find that, controlling for Reserve’s actions sentiment policy texts, positive tone voices Reserve chairs leads significant increases share prices. Other variables also respond vocal cues from chairs. Hence, how...

We introduce and justify a taxonomy for the structure of markets and minimal institutions which appear in constructing minimally complex trading structures to perform the functions of price formation, settlement and payments. Each structure is presented as a playable strategic market game and is examined for its efficiency, the number of degrees of freedom and the symmetry properties of the str...