IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

A "quantum" approach to rational inattention

  • Saint-Paul, Gilles

In this paper, I propose a model of rational inattention where the choice variable is a deterministic function of the exogenous variables, and still only a finite amount of information is being used. This holds provided the choice variable is discrete rather than continuous; that is, the mapping from the realization of the exogenous variables to the endogenous ones is piece-wise constant. Thus, limited information is now a source of lumpiness in behavior, rather than a source of noise. A central result is that the mutual information between the exogenous variable and the endogenous one is simply equal to the entropy, in the usual discrete sense, of the endogenous variable. The approach is illustrated with two applications: a general linear-quadratic problem with a uniform distribution, and a simple static model of price-setting where individual price setters face aggregate monetary shocks and idiosyncratic productivity shocks.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=7739
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7739.

as
in new window

Length:
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:cpr:ceprdp:7739
Contact details of provider: Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information: Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Caballero, R.J. & Engel, E.M.R.A., 1989. "Heterogeneity And Output Fluctuations In A Dynamic Menu Cost Economy," Discussion Papers 1989_40, Columbia University, Department of Economics.
  2. Christian Hellwig & Ariel Burstein, 2007. "Prices and Market Shares in a Menu Cost Model," 2007 Meeting Papers 327, Society for Economic Dynamics.
  3. Filip Matejka & Christopher A. Sims, 2011. "Discrete Actions in Information-Constrained Tracking Problems," CERGE-EI Working Papers wp441, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  4. Saint-Paul, Gilles, 2002. "Some Evolutionary Foundations for Price Level Rigidity," CEPR Discussion Papers 3150, C.E.P.R. Discussion Papers.
  5. Bartosz Mackowiak & Mirko Wiederholt, 2009. "Optimal Sticky Prices under Rational Inattention," American Economic Review, American Economic Association, vol. 99(3), pages 769-803, June.
  6. Peter J. Klenow & Oleksiy Kryvtsov, 2005. "State-Dependent or Time-Dependent Pricing: Does It Matter for Recent U.S. Inflation?," Working Papers 05-4, Bank of Canada.
  7. Yulei Luo, 2005. "Consumption Dynamics under Information Processing Constraints," Macroeconomics 0505011, EconWPA, revised 03 Jun 2005.
  8. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," Harvard Institute of Economic Research Working Papers 1922, Harvard - Institute of Economic Research.
  9. Ricardo J. Caballero & Eduardo M.R.A. Engel & John Haltiwanger, 1995. "Aggregate Employment Dynamics: Building From Microeconomic Evidence," NBER Working Papers 5042, National Bureau of Economic Research, Inc.
  10. Bartosz Mackowiak & Mirko Wiederholt, 2008. "Business Cycle Dynamics under Rational Inattention," 2008 Meeting Papers 1059, Society for Economic Dynamics.
  11. Luigi Paciello, 2008. "The Response of Prices to Technology and Monetary Policy Shocks under Rational Inattention," EIEF Working Papers Series 0816, Einaudi Institute for Economics and Finance (EIEF), revised Nov 2007.
  12. Emmanuel Dhyne & Luis J. Alvarez & Herve Le Bihan & Giovanni Veronese & Daniel Dias & Johannes Hoffmann & Nicole Jonker & Patrick Lunnemann & Fabio Rumler & Jouko Vilmunen, 2006. "Price Changes in the Euro Area and the United States: Some Facts from Individual Consumer Price Data," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 171-192, Spring.
  13. Weitzman, Martin L, 1985. "The Simple Macroeconomics of Profit Sharing," American Economic Review, American Economic Association, vol. 75(5), pages 937-53, December.
  14. Sergio Rebelo & Nir Jaimovich & Martin Eichenbaum, 2010. "Reference Prices and Nominal Rigidities," 2010 Meeting Papers 1049, Society for Economic Dynamics.
  15. Andrew C. Caplin & Daniel F. Spulber, 1987. "Menu Costs and the Neutrality of Money," NBER Working Papers 2311, National Bureau of Economic Research, Inc.
  16. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  17. Moscarini, Giuseppe, 2004. "Limited information capacity as a source of inertia," Journal of Economic Dynamics and Control, Elsevier, vol. 28(10), pages 2003-2035, September.
  18. Filip Matejka, 2010. "Rigid Pricing and Rationally Inattentive Consumer," CERGE-EI Working Papers wp409, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:7739. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.