Optimal policy under uncertainty and rational inattention

Bodo Herzog

Research in International Business and Finance, 2019, vol. 50, issue C, 444-449

Abstract: This paper generalizes the theory of policy uncertainty with the new literature on rational inattention. First, the model demonstrates that inattention is dependent on the signal variance and the policy parameter. Second, I discover a novel trade-off showing that a policy instrument mitigates attention. Third, the policy instrument is non-linear and reciprocal to both the size and variance of the signal. The unifying theory creates new implications to economic theory and public policy alike.

Keywords: Rational inattention; Trade-Off; Policy uncertainty; Unifying modelling (search for similar items in EconPapers)
JEL-codes: D78 D81 E61 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:50:y:2019:i:c:p:444-449

DOI: 10.1016/j.ribaf.2019.07.002

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