Linear quadratic approximation of rationally inattentive control problems

Jianjun Miao and Bo Zhang

Macroeconomic Dynamics, 2024, vol. 28, issue 6, 1371-1393

Abstract: This paper proposes a linear quadratic approximation approach to dynamic nonlinear rationally inattentive control problems with multiple states and multiple controls. An efficient toolbox to implement this approach is provided. Applying this toolbox to five economic examples demonstrates that rational inattention can help explain the comovement puzzle in the macroeconomics literature.

Date: 2024
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