Finance and Economics Discussion Series: The Two-Period Rational Inattention Model: Accelerations and Analyses

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.

• | Author: United States Federal Reserve Board
• | Publisher: Bibliogov
• | Publication Date: Feb 05, 2013
• | Number of Pages: 24 pages
• | Binding: Paperback or Softback
• | ISBN-10: 1288707622
• | ISBN-13: 9781288707621