Information rigidities and asymmetric business cycles

We study the link between asymmetries of markups and firm exit rates and asymmetries in information acquisition along the U.S. business cycle. We argue that a model of optimal firm exit under rational inattention produces lagged, counter-cyclical and positively skewed markups together with counter-cyclical exit rates, consistent with the empirical evidence. Our model also predicts counter-cyclical information rigidities consistent with survey evidence. (C) 2016 Elsevier B.V. All rights reserved.