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Rational inattention, menu costs, and multi-product firms: Micro evidence and aggregate implications

Choongryul Yang ()

Journal of Monetary Economics, 2022, vol. 128, issue C, 105-123

Abstract: Using a New Zealand firm-level survey, I show that firms producing more goods have both better information about inflation and more frequent but smaller price changes. To explain these empirical findings, I develop a general equilibrium menu cost model with rationally inattentive multi-product firms. I show that the interaction of nominal and informational rigidities leads to a new selection effect: Price adjusters are better informed than non-adjusters. This selection endogenously generates a leptokurtic distribution of desired price changes, which amplifies monetary non-neutrality. Compared to a one-product baseline, the real effects of monetary shocks are 12 percent smaller in a two-product model.

Keywords: Inflation expectations; Monetary non-neutrality; Rational inattention; Menu costs; Multi-product firms; Economies of scope (search for similar items in EconPapers)
JEL-codes: E31 E32 E37 E52 E70 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.jmoneco.2022.04.004

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