Aggregate Shocks or Aggregate Information? Costly Information and Business Cycle Comovements.Journal of Monetary Economics, forthcoming

Synchronized expansions and contractions across sectors define business cycles. Yet syn-chronization 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 of acquiring aggre-gate information, rather than each paying the full production cost to forecast their sector-specific productivity. Sectors with common, aggregate information make highly correlated production choices. By filtering out sector-specific shocks and transmitting aggregate ones, information markets amplify business-cycle comovement