Description

Economies of scope in information processing naturally arise in a rational inattention model of multi-product firms: Processing information is difficult, but once information is internalized, it can be freely used for all decisions it concerns. Monetary shocks concern all pricing decisions in multiproduct firms; good-specific shocks, however, concern only a few. Hence, in a model with goodspecific shocks, attention to monetary shocks increases as firms produce more goods. Such goodspecific shocks are necessary in our model to account for the dispersion of price changes within firms observed in both CPI and PPI data in the U.S. Our model calibrated to CPI data predicts perfect neutrality of money while calibrated to PPI data it predicts limited non-neutrality.