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The Two-Period Rational Inattention Model: Accelerations and Analyses

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  • Kurt Lewis

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Abstract

This paper demonstrates the properties of and a solution method for the more general two-period Rational Inattention model of Sims (2006). It is shown that the corresponding optimization problem is convex and can be solved very quickly. This paper also demonstrates a computational tool well-suited to solving Rational Inattention models and further illustrates a critique raised in Sims (2006) regarding Rational Inattention models whose solutions assume parametric formulations rather than solve for their optimally-derived, non-parametric counterparts.

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File URL: http://hdl.handle.net/10.1007/s10614-008-9151-5
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Bibliographic Info

Article provided by Society for Computational Economics in its journal Computational Economics.

Volume (Year): 33 (2009)
Issue (Month): 1 (February)
Pages: 79-97

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Handle: RePEc:kap:compec:v:33:y:2009:i:1:p:79-97

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Web page: http://www.springerlink.com/link.asp?id=100248
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Related research

Keywords: Rational inattention; Information-processing constraints; Numerical optimization;

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References

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  1. B. D. McCullough & H. D. Vinod, 2003. "Verifying the Solution from a Nonlinear Solver: A Case Study," American Economic Review, American Economic Association, vol. 93(3), pages 873-892, June.
  2. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
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Citations

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Cited by:
  1. Antonella Tutino, 2008. "The rigidity of choice: Lifecycle savings with information-processing limits," Finance and Economics Discussion Series 2008-62, Board of Governors of the Federal Reserve System (U.S.).
  2. Leonardo Melosi, 2009. "A Likelihood Analysis of Models with Information Frictions," 2009 Meeting Papers 1034, Society for Economic Dynamics.
  3. Tutino, Antonella, 2008. "The rigidity of choice: lifetime savings under information-processing constraints," MPRA Paper 16744, University Library of Munich, Germany, revised 24 Jul 2009.
  4. N. Gregory Mankiw & Ricardo Reis, 2010. "Imperfect Information and Aggregate Supply," Discussion Papers 0910-11, Columbia University, Department of Economics.
  5. Luo, Yulei & Young, Eric, 2013. "Rational Inattention in Macroeconomics: A Survey," MPRA Paper 54267, University Library of Munich, Germany.

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