Investment under Rational Inattention: Evidence from US Sectoral Data

Peter Zorn ()

No 577, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: I document the effects of macroeconomic and sector-specific shocks on investment in disaggregate sectoral capital expenditure data. The response of sectoral investment to macroeconomic shocks is hump-shaped, just as in aggregate data. By contrast, the effects of sector-specific innovations are monotonically decreasing. I build and calibrate a model of investment with convex capital adjustment costs and rational inattention to explain these features of the data. The model matches the empirical responses of sectoral investment to both shocks. The interaction of information frictions and physical adjustment costs is key to this result.

Date: 2019
New Economics Papers: this item is included in nep-dge and nep-mac
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Working Paper: Investment under Rational Inattention: Evidence from US Sectoral Data (2020)
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