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Faculty News September 27, 2023

Karthik Sastry–macroeconomist studying innovation and information–joins Princeton Economics

The Economics Department at Princeton University is thrilled to welcome Karthik Sastry as one of the newest members of its faculty. Sastry, who has a joint appointment with the Economics Department and the Princeton School of Public and International Affairs (SPIA), is a macroeconomist who studies the interactions between information, innovation, and markets.

But this fall won’t be the first time Sastry’s stepped into a classroom on Princeton’s campus. Sastry earned his B.A. in economics from Princeton in 2016, and says he credits the mentorship he received as an undergraduate with jump-starting his career in academia.

“It’s amazing to be back, and a little bit surreal,” Sastry said. “But I’m excited to start the teaching and giving-back phase of my career where my own interest in economics started and where I was fortunate to receive tremendous mentorship. It really means a lot to me.”

Classic theories, new data

In one major thread of research, Sastry focuses on innovation in the macroeconomy, studying how new technological waves do or don’t line up with social needs. In a recent paper written with Jacob Moscona, currently a Prize Fellow in Economics, History and Politics at Harvard University, Sastry shows that a concentration of agricultural innovation in rich countries–specifically R&D around crop-specific pests and pathogens–drives global disparities in technology adoption and agricultural productivity.

A main contribution of the paper is the creation of an index and a new model that can help researchers test, empirically, the longstanding “inappropriate technology” theory in economics–the idea that disparities in research are a big driver of differences in productivity around the world. 

“Essentially we show that technological progress drives inequality because the technology is so specific,” Sastry said. “And importantly, we construct a method to analyze this empirically.”

The new data-driven method of analysis suggests that “inappropriate technology” increases cross-country disparities by 15 percent and reduces global productivity by 58 percent. Sastry is now working on follow-up work to measure how technology mismatch in medical innovation might also exacerbate global inequities.

In another vein of research, Sastry studies narratives about the economy and how viral stories spread and manifest themselves. In another paper written with Joel P. Flynn, now an assistant professor at Yale University, Sastry uses data to test a theory, largely attributed to Yale Professor and Nobel Laureate Bob Schiller, that people make decisions based on economic narratives, and that these ideas spread and ultimately influence business cycle fluctuations.

Developing new methods that employ text from firms’ regulatory filings and earnings calls transcripts, the authors are able to quantify the narratives firms are telling. The research provides empirical evidence that 20 percent of fluctuations are explained by these contagious narratives going in and out of style. 

“What’s exciting about the current moment is that we have a huge amount of data,” Sastry said about research today. “We can study hypotheses, which previously seemed too hard to study at all, in very granular detail. And then we can scale this up to tell broader stories about the world, about inequality, and so much more.”

The lasting impact of undergraduate mentorship

Sastry said his career as researcher began during his time at Princeton when he emailed his undergraduate econometrics professor, Princeton Professor and 2011 Nobel Laureate Chris Sims, to ask about potential research opportunities.

Sims, who would later serve as Sastry’s senior thesis advisor, arranged for Sastry to spend the summer in Princeton and assist on an ongoing project.

“I was over my head in terms of the coding, the level of economics, and the logistics of a research project like that. But Chris was the definition of kind and graceful mentorship. He was and continues to be a really inspirational figure in my academic career.” 

That research project–a collaboration with Sims, Princeton Professor Markus Brunnermeier, and Rutgers University Professor Darius Palia that was eventually published in the American Economic Review–showed Sastry what it takes to produce cutting-edge research.

“It was a little overwhelming, but it showed me what it is to do quality academic research,” Sastry said. “I fell in love with that process, of not knowing the answer, but knowing that with hard work and careful reasoning you can slowly claw your way towards it.”

When Sastry isn’t studying the macroeconomy, he likes to cook, read science fiction, or take a quick jog around town.

“A lot of campus hasn’t changed,” Sastry said. “And that’s part of the charm. But it’s inspiring and cool to see the expansion of the campus and a lot of the new initiatives that are happening. It’s really great to be back.”

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