Lean inventory management can be a profitable strategy, but it renders the economy more vulnerable to unanticipated shocks. This paper quantifies the tradeoff in a structurally estimated heterogeneous firms model.

Professional forecasters tend to over- and underreact to different macroeconomic variables. A model that incorporates unobserved time varying volatility is able replicate this fact. I find that a key determinant of over- and underreactions is the underlying signal-to-noise ratio.

Forecast error predictability is used to motivate departures from full information rational expectations. I offer an additional fact that can serve to further distinguish between models of belief formation.