Rational inattention, menu costs, and multi-product firms: Micro evidence and aggregate implications

Using a New Zealand firm-level survey, I show that firms producing more goods have both better information about inflation and more frequent but smaller price changes. To explain these empirical findings, I develop a general equilibrium menu cost model with rationally inattentive multi-product firms. I show that the interaction of nominal and informational rigidities leads to a new selection effect: Price adjusters are better informed than non-adjusters. This selection endogenously generates a leptokurtic distribution of desired price changes, which amplifies monetary non-neutrality. Compared to a one-product baseline, the real effects of monetary shocks are 12 percent smaller in a two-product model.