Title: Nominal Rigidities, Rational Inattention, and the Optimal Monetary Policy

Speaker: Associate Professor Zhang Renbin, School of Economics, Shandong University

Host: Professor Wu Ji from RIEM

Time: April 22, 2025 10:00-11:30

Location: Conference Room 1211, Gezhi Building, Liulin Campus, SWUFE

Organizer: RIEM

Speaker's Profile

Zhang Renbin is an Associate Professor in the School of Economics at Shandong University. He holds a Ph.D. in Economics from the Universitat Autònoma de Barcelona & Barcelona GSE. His primary research areas include monetary policy and macro-finance. His research has been published in internationally renowned journals such as the Journal of Monetary Economics, Journal of Economic Behavior & Organization, Journal of the European Economic Association, Economic Theory, and the Journal of Empirical Finance.

Abstract

Optimal monetary policy has traditionally assigned greater importance to stabilizing prices in sectors with stickier prices, based on multi-sector models with full information or exogenous information frictions. This paper challenges the prevailing policy prescription by introducing rational inattention with endogenous information acquisition. Surprisingly, the optimal policy assigns a smaller weight to sectors with stickier prices when information acquisition is sufficiently costly. This counterintuitive result stems from the endogenous relationship between attention and nominal rigidities: firms in sectors with more flexible prices pay less attention to macroeconomic conditions. We provide empirical evidence supporting this mechanism.