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.

Updates to survey expectations exhibit an offsetting pattern that are incompatible with standard theories of belief formation. We rationalize this in a model featuring annual inattention and a quarterly-to-annual consistency constraint. Our model offers a new explanation for observed overreactions in expectations.

A theory in which forecasters adopt parsimonious models of richer underlying processes can serve as a suitable benchmark departure from full information rational expectations.