Pervasive inattentiveness

In this paper we analyze how inattentiveness in capital investment decisions shapes business cycle dynamics in a dynamic stochastic general equilibrium (DSGE) model with inattentiveness. We find that the model with pervasive inattentiveness matches several business cycle moments much better than an otherwise identical model without informational frictions in investment. These findings reinforce the need for pervasive stickiness to mimic the inertia found in macroeconomic data.