Rational Inattention, Multi-Product Firms and the Neutrality of Money

Raphael Schoenle and Ernesto Pasten

No 91, Working Papers from Brandeis School of Business and Economics

Abstract: In a quantitative rational inattention model, monetary non-neutrality quickly vanishes as firms price more goods while monetary non-neutrality is strong in a single-product setting under otherwise identical conditions. This result is due to (1) economies of scope that arise naturally in the multi-product setting, where processing information is costly but using already internalized information is free, and (2) good-speci c shocks that account for a nonzero fraction of the within- rm dispersion of log price changes, which we document in U.S. data. As a consequence, as rms price more goods, they shift attention from good-speci c to common shocks, such as monetary shocks. Aggregate prices then respond much faster to monetary shocks due to strategic complementarity.

Keywords: rational inattention; multi-product arms; monetary non-neutrality (search for similar items in EconPapers)
JEL-codes: D8 E3 E5 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2015-08
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Rational inattention, multi-product firms and the neutrality of money (2016)
Working Paper: Rational Inattention, Multi-Product Firms and the Neutrality of Money (2012)
Working Paper: Rational Inattention, Multi-Product Firms and the Neutrality of Money (2012)
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