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Investment under Rational Inattention: Evidence from US Sectoral Data

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  • Peter Zorn

    (University of Munich)

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.

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  • Peter Zorn, 2019. "Investment under Rational Inattention: Evidence from US Sectoral Data," 2019 Meeting Papers 577, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:577
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    2. Adrien Auclert & Ludwig Straub & Matthew Rognlie, 2019. "Micro Jumps, Macro Humps: monetary policy and business cycles in an estimated HANK model," 2019 Meeting Papers 1449, Society for Economic Dynamics.
    3. Bartosz Maćkowiak & Filip Matějka & Mirko Wiederholt, 2023. "Rational Inattention: A Review," Journal of Economic Literature, American Economic Association, vol. 61(1), pages 226-273, March.
    4. Cooper Howes, 2019. "Financial Constraints, Sectoral Heterogeneity, and the Cyclicality of Investment," 2019 Meeting Papers 1581, Society for Economic Dynamics.
    5. Atahan Afsar; José Elías Gallegos; Richard Jaimes; Edgar Silgado Gómez & José Elías Gallegos & Richard Jaimes & Edgar Silgado Gómez, 2020. "Reconciling Empirics and Theory: The Behavioral Hybrid New Keynesian Model," Vniversitas Económica 18560, Universidad Javeriana - Bogotá.
    6. Zhang, Yuhua & Mu, Congming, 2021. "Optimal ownership of entrepreneurial firms with rational inattention," Economics Letters, Elsevier, vol. 209(C).
    7. Hassan Afrouzi, 2020. "Strategic Inattention, Inflation Dynamics, and the Non-Neutrality of Money," CESifo Working Paper Series 8218, CESifo.
    8. Sebastian Link & Andreas Peichl & Christopher Roth & Johannes Wohlfart, 2023. "Attention to the Macroeconomy," ECONtribute Discussion Papers Series 256, University of Bonn and University of Cologne, Germany.
    9. George-Marios Angeletos & Zhen Huo, 2021. "Myopia and Anchoring," American Economic Review, American Economic Association, vol. 111(4), pages 1166-1200, April.
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    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis

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