Optimal Sticky Prices Under Rational Inattention

This paper presents a model in which price setting firms decide what to pay attention to, subject to a constraint on information flow. When idiosyncratic conditions are more variable or more important than aggregate conditions, firms pay more attention to idiosyncratic conditions than to aggregate conditions. When we calibrate the model to match the large average absolute size of price changes observed in micro data, prices react fast and by large amounts to idiosyncratic shocks, but only slowly and by small amounts to nominal shocks. Nominal shocks have strong and persistent real effects. An optimizing trader will process those prices of most importance to his decision problem most frequently and carefully, those of less importance less so, and most prices not at all. Of the many sources of risk of importance to him, the business cycle and aggregate behavior generally is, for most agents, of no special importance, and there is no reason for traders to specialize their own information systems for diagnosing general movements correctly. – Robert E. Lucas (1977, 21)

Objekt anzeigen

• Standort: Deutsche Nationalbibliothek Frankfurt am Main
• Umfang: Online-Ressource
• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Optimal Sticky Prices Under Rational Inattention ; volume:52 ; number:4 ; year:2019 ; pages:573-617 ; Credit and capital markets ; 52, Heft 4 (2019), 573-617

Beteiligte, Orts- und Zeitangaben

• Urheber: Maćkowiak, Bartosz ; Wiederholt, Mirko

Weitere Informationen

• DOI: 10.3790/ccm.52.4.573
• URN: urn:nbn:de:101:1-2022101115260048238383
• Rechteinformation: Open Access; Der Zugriff auf das Objekt ist unbeschränkt möglich.