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Discrete Actions in Information-Constrained Tracking Problems

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  • Filip Matejka
  • Christopher A. Sims

Abstract

Optimal actions of an agent facing a Shannon capacity constraint on the translation of an uncertain signal into an action can easily turn out to be discretely distributed, even when the objective function and the initial distribution of uncertainty contain no discrete elements. We show this result analytically in a broad class of cases. It has implications for the interpretation of observed intervals between changes in prices or other economic choice variables in micro-data as indicators of costs of adjustment or of the degree of “stickiness” in responses to aggregate policy changes or business cycle fluctuations.

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Bibliographic Info

Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp441.

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Date of creation: Jun 2011
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Handle: RePEc:cer:papers:wp441

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Keywords: rational inattention; adjustment frictions; sticky prices;

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Cited by:
  1. Antonella Tutino, 2012. "Online Appendix to "Rationally inattentive consumption choices"," Technical Appendices, Review of Economic Dynamics 11-143, Review of Economic Dynamics.
  2. Jonathan A. Parker & Nicholas S. Souleles & David S. Johnson & Robert McClelland, 2011. "Consumer Spending and the Economic Stimulus Payments of 2008," NBER Working Papers 16684, National Bureau of Economic Research, Inc.
  3. Filip Matejka, 2013. "Attention Discrimination: Theory and Field Experiments," 2013 Meeting Papers, Society for Economic Dynamics 798, Society for Economic Dynamics.
  4. Gagnon, Etienne & López-Salido, J David & Vincent, Nicolas, 2012. "Individual Price Adjustment along the Extensive Margin," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9143, C.E.P.R. Discussion Papers.
  5. Tim Willems, 2013. "Actively Learning by Pricing: A Model of an Experimenting Seller," Economics Series Working Papers, University of Oxford, Department of Economics 687, University of Oxford, Department of Economics.
  6. Saint-Paul, Gilles, 2010. "A "quantum" approach to rational inattention," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7739, C.E.P.R. Discussion Papers.
  7. Luigi Paciello, 2009. "Monetary Policy and Price Responsiveness to Aggregate Shocks under Rational Inattention," EIEF Working Papers Series 0916, Einaudi Institute for Economics and Finance (EIEF), revised Sep 2011.
  8. Antonella Tutino & Anton Cheremukhin, 2012. "Asymmetric Firm Dynamics under Rational Inattention," 2012 Meeting Papers, Society for Economic Dynamics 161, Society for Economic Dynamics.
  9. Marcin Kacperczyk & Jaromir B. Nosal & Luminita Stevens, 2014. "Investor Sophistication and Capital Income Inequality," NBER Working Papers 20246, National Bureau of Economic Research, Inc.
  10. Luo, Yulei & Young, Eric, 2013. "Long-run Consumption Risk and Asset Allocation under Recursive Utility and Rational Inattention," MPRA Paper 52904, University Library of Munich, Germany.

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