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The Two-Period Rational Inattention Model: Accelerations and Analyses


  • Kurt Lewis



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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Suggested Citation

  • Kurt Lewis, 2009. "The Two-Period Rational Inattention Model: Accelerations and Analyses," Computational Economics, Springer;Society for Computational Economics, vol. 33(1), pages 79-97, February.
  • Handle: RePEc:kap:compec:v:33:y:2009:i:1:p:79-97 DOI: 10.1007/s10614-008-9151-5

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    References listed on IDEAS

    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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    1. repec:hrv:faseco:33907956 is not listed on IDEAS
    2. Batchuluun, Altantsetseg & Luo, Yulei & Young, Eric, 2014. "Portfolio Choice with Information-Processing Limits," MPRA Paper 58538, University Library of Munich, Germany.
    3. Luo, Yulei & Young, Eric, 2013. "Rational Inattention in Macroeconomics: A Survey," MPRA Paper 54267, University Library of Munich, Germany.
    4. 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.
    5. Mankiw, N. Gregory & Reis, Ricardo, 2010. "Imperfect Information and Aggregate Supply," Handbook of Monetary Economics,in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 5, pages 183-229 Elsevier.
    6. 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.).
    7. Leonardo Melosi, 2009. "A Likelihood Analysis of Models with Information Frictions," 2009 Meeting Papers 1034, Society for Economic Dynamics.


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