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  4. January 2025
  5. Rational Inattention and the Business Cycle Effects of Productivity and News Shocks

American Economic Journal:
Macroeconomics

ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)

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

  • Bartosz Maćkowiak
  • Mirko Wiederholt
American Economic Journal: Macroeconomics
vol. 17, no. 1, January 2025
(pp. 274–309)
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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.

Citation

Maćkowiak, Bartosz, and Mirko Wiederholt. 2025. "Rational Inattention and the Business Cycle Effects of Productivity and News Shocks." American Economic Journal: Macroeconomics, 17 (1): 274–309. DOI: 10.1257/mac.20220182

Additional Materials

JEL Classification

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