Asymmetric firm dynamics under rational inattention
Anton Cheremukhin and
Antonella Tutino ()
No 1411, Working Papers from Federal Reserve Bank of Dallas
We study the link between business failures, markups and business cycle asymmetry in the U.S. economy with a model of optimal firm exit under rational inattention. We show that the model's predictions of lagged, counter-cyclical and positively skewed markups together with counter-cyclical exit rates are consistent with the empirical evidence. Moreover, our model uncovers a new mechanism that links information processing with the business cycle. It predicts counter-cyclical attention to economic conditions consistent with survey evidence.
Keywords: rational inattention.; exit rates; markups; Information (search for similar items in EconPapers)
JEL-codes: C63 E32 D80 D22 D21 (search for similar items in EconPapers)
Pages: 76 pages
Date: 2014-10-01, Revised 2014-10-01
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
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Working Paper: Asymmetric Firm Dynamics under Rational Inattention (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddwp:1411
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