Rational Inattention in Uncertain Business Cycles

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• 作者：FANG ZHANG
• 刊名：Journal of Money, Credit and Banking
• 出版年：2017
• 出版时间：February 2017
• 年：2017
• 卷：49
• 期：1
• 页码：215-253
• 全文大小：987K
• ISSN：1538-4616

文摘

The paper proposes endogenous information choice as a channel through which uncertainty affects price dynamics. I consider a rational inattention model with volatility uncertainty and endogenous information processing capability. According to the model, firms' learning and optimal attention exhibits inertia and asymmetry in response to volatility changes. Firms choose to process more information when uncertainty rises, especially about aggregate conditions, and their pricing behavior changes accordingly. Using a Markov-switching factor-augmented vector autoregression (MS-FAVAR), the paper also documents a significant positive correlation between volatility and firms' responsiveness to macro- and microlevel shocks, consistent with model predictions.