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

A-Tier
Journal: Journal of Monetary Economics
Year: 2022
Volume: 128
Issue: C
Pages: 105-123

Score contribution per author:

4.022 = (α=2.01 / 1 authors) × 2.0x A-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

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.

Technical Details

RePEc Handle
repec:eee:moneco:v:128:y:2022:i:c:p:105-123
Journal Field
Macro
Author Count
1
Added to Database
2026-01-29