Working Papers Work in Progress - “Sticky Prices, Rational Inattention and Monetary Non-Neutrality” [Slides]
- Abstract: Recent survey evidence shows that firms who changed their prices more recently have more accurate inflation expectations and are more certain about their forecasts. We show that this selection in information acquisition is consistent with random price adjustments in a model with rationally inattentive firms. Furthermore, we derive sufficient statistics for the real effects of two different types of monetary shocks within the model. The real effect of unanticipated but announced shocks is inversely proportional to the frequency of price change — a statistic that comes from the distribution of prices. However, the real effect of unanticipated and unannounced shocks is proportional to the average uncertainty of firms about the underlying shocks — a statistic that comes from the distributions of beliefs.
- “Rationally Confused: On the Aggregate Implications of Information Provision Policies” (with Miguel Acosta). [Slides]
- Abstract: What are the aggregate effects of shocking firms' inflation expectations? Evidence from randomized controlled trials is contradictory: in Italy firms decrease their employment when their inflation expectations are raised exogenously relative to a control group. In New Zealand, a similar trial induces treated firms to increase their employment. We show these patterns are consistent with optimal information acquisition of firms in a rational inattention model. In our model, firms face a tradeoff between identifying the shocks that affect their profits and having a better estimate of how those shocks affect their profits all together. Therefore, when their inflation expectations are raised, they cannot tell apart supply and demand factors. Therefore, in demand driven economies raising expectations acts as demand shocks and vice versa.
- “Inflation Expectations under High Inflation: Evidence from Iran.” (with Saeed Bayat, Omid Ghaderi and Ali Madanizadeh)
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