Monetary Shocks in Models with Inattentive Producers

Francesco Lippi, Luigi Paciello () and Fernando Alvarez
Additional contact information
Fernando Alvarez: University of Chicago

No 316, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: We study models where prices respond slowly to shocks because firms are rationally inattentive. Producers must pay a cost to observe the determinants of the current profit maximizing price, and hence observe them infrequently. To generate large real effects of monetary shocks in such a model the time between observations must be long and/or highly volatile. Previous work on rational inattentiveness has allowed for observation intervals which are either constant-but-long (e.g. Caballero (1989) or Reis (2006)) or volatile-but-short (e.g. Reis's (2006) example where observation costs are negligible), but not both. In these models, the real effects of monetary policy are small for realistic values of the average time between observations. We show that non-negligible observation costs produce both these effects: intervals between observations are both infrequent and volatile. This generates large real effects of monetary policy for realistic values of the average time between observations.

Date: 2015
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2015/paper_316.pdf (application/pdf)

Related works:
Journal Article: Monetary Shocks in Models with Inattentive Producers (2016)
Working Paper: Monetary Shocks in Models with Inattentive Producers (2014)
Working Paper: Monetary Shocks in a Model with Inattentive Producers (2012)
Working Paper: Monetary Shocks in a Model with Inattentive Producers (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed015:316

Access Statistics for this paper

More papers in 2015 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().