Working Paper: CEPR ID: DP16812
Authors: Bartosz Mackowiak; Mirko Wiederholt
Abstract: 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.
Keywords: information choice; rational inattention; real business cycle model; productivity shocks; news shocks
JEL Codes: D83; E32; E71
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Rational Inattention (D89) | Propagation of Productivity Shocks (O49) |
| Rational Inattention (D80) | Delayed Response in Employment, Investment, and Output (J29) |
| Rational Inattention (D80) | Demand for Labor and Capital in Response to Positive News Shocks (J23) |
| Rational Inattention (D80) | Output Expansion Following Positive News Shock (E32) |
| Rational Inattention (D80) | Increase in Hours Worked in Equilibrium (J29) |
| Rational Inattention (D89) | First-Order Autocorrelations in Employment, Investment, and Output Growth (E27) |