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Asymmetric firm dynamics under rational inattention

Anton Cheremukhin and Antonella Tutino ()

No 1411, Working Papers from Federal Reserve Bank of Dallas

Abstract: 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) Downloads
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DOI: 10.24149/wp1411

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