The Shock of the News
by Casey B. Mulligan
The Conversation
December 9th, 2008
Professor DeLong is incorrect: News about current and future supply prices of new capital goods have an immediate and discrete effect on the market value of existing capital. There is no reason that such news would necessarily hit the marketplace in a smooth, continuous way.
Indeed, the timing of the housing crash hit us by surprise. Thus, we were equally surprised by the timing of the release of resources from the housing sector.
The discreteness or continuity of actual market price changes will not help distinguish fundamentals from “financial accelerators.”
