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Rational Inattention and the Business Cycle Effects of Productivity and News Shocks

Author

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  • Bartosz Maćkowiak
  • 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.

Suggested Citation

  • Bartosz Maćkowiak & Mirko Wiederholt, 2025. "Rational Inattention and the Business Cycle Effects of Productivity and News Shocks," American Economic Journal: Macroeconomics, American Economic Association, vol. 17(1), pages 274-309, January.
    • Handle: RePEc:aea:aejmac:v:17:y:2025:i:1:p:274-309
    DOI: 10.1257/mac.20220182
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    Cited by:

    1. is not listed on IDEAS
    2. Ahn, Hie Joo & Xie, Shihan & Yang, Choongryul, 2024. "Effects of monetary policy on household expectations: The role of homeownership," Journal of Monetary Economics, Elsevier, vol. 147(C).
    3. Link, Sebastian & Peichl, Andreas & Roth, Christopher & Wohlfart, Johannes, 2023. "Information frictions among firms and households," Journal of Monetary Economics, Elsevier, vol. 135(C), pages 99-115.
    4. Jurado, Kyle, 2023. "Rational inattention in the frequency domain," Journal of Economic Theory, Elsevier, vol. 208(C).

    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy

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