Rational Inattention and the Business Cycle Effects of Productivity and News Shocks

Bartosz Maćkowiak and Mirko Wiederholt ()
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Mirko Wiederholt: ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research, LMU - Ludwig Maximilian University [Munich] = Ludwig Maximilians Universität München

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Abstract: We solve a real business cycle model with rational inattention (an RI-RBC model). In the standard model, anticipated fluctuations in productivity fail to cause business cycle comovement. In response to news about higher future productivity, consumption rises but employment and investment fall. Introducing rational inattention helps produce comovement. Agents choose an optimal signal about the state of the economy. The optimal signal turns out to confound current with expected future productivity. Labor and investment demand rise after a news shock, causing an output expansion. Rational inattention also improves the propagation of a standard productivity shock, by inducing persistence.

Keywords: Information choice; Rational inattention; Real business cycle model; News shocks; Productivity shocks (search for similar items in EconPapers)
Date: 2021-12
New Economics Papers: this item is included in nep-dge and nep-upt
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03878704
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Rational Inattention and the Business Cycle Effects of Productivity and News Shocks (2025)
Working Paper: Rational inattention and the business cycle effects of productivity and news shocks (2023)
Working Paper: Rational Inattention and the Business Cycle Effects of Productivity and News Shocks (2022)
Working Paper: Rational Inattention and the Business Cycle Effects of Productivity and News Shocks (2021)
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