We use a statistical model to estimate impulse responses of sectoral price indices to aggregate shocks and to sector-specific shocks. In the median sector, 100 percent of the long-run response of the sectoral price index to a sector-specific shock occurs in the month of the shock. The Calvo...

This paper derives an analytical solution to a class of rational inattention problems. In Sims (2003) Section 4, the decision-maker chooses the process {Y} to track a Gaussian process {X} with loss E[(X-Y)^2] subject to a constraint on the information flow between the two processes. Sims (2003)...