Investment under Rational Inattention

Category: Money and Macro Brown Bag Seminar
When: 14 January 2016
, 12:00
 - 13:30
Where: Boston (HoF 2.45)
Speaker: Peter Zorn (Goethe University Frankfurt)

Abstract: I document the effects of macroeconomic and sector-specific shocks on investment in disaggregate sectoral capital expenditure data. The response of sectoral investment to macroeconomics shocks is protracted and hump-shaped, just as in aggregate data. By contrast, the effects of sector-specific innovations are short-lived and monotonically decreasing. I build a model of investment with rational inattention to explain these facts. The model predicts protracted effects of aggregate shocks and short-lived effects of sector-specific shocks on sectoral investment.