Rational inattention and the business cycle effects of productivity and news shocks

Arbeitspapier

We solve a real business cycle model with rational inattention (an RI-RBC model). In the RI-RBC model, the growth rates of employment, investment, and output are about as persistent as in the data, with an amount of inattention consistent with survey data on expectations. Moreover, consumption, employment, and output move in the same direction in response to news about future productivity. By contrast, the baseline RBC model produces neither persistent growth rates nor business cycle comovement after news shocks.

Object Details

• ISBN: 978-92-899-6112-7
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2827

Classification and Topics

• Classification: Wirtschaft ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness ; Business Fluctuations; Cycles ; Macro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy‡
• Subject: information choice ; rational inattention ; real business cycle model ; productivity shocks ; news shocks

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Maćkowiak, Bartosz ; Wiederholt, Mirko
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2023

Further information

• DOI: doi:10.2866/755494
• Handle: http://hdl.handle.net/10419/278659
• Last update: 10.03.2025, 11:45 AM CET