Rational inattention in the frequency domain

Kyle Jurado

Journal of Economic Theory, 2023, vol. 208, issue C

Abstract: This paper solves a dynamic rational inattention problem by formulating it in the frequency domain. The main result is a rational inattention version of the classical Wiener-Kolmogorov filter. This filter permits an infinite-dimensional state vector, provides a new line of attack for obtaining closed-form solutions, and can be implemented numerically using a simple iterative algorithm. The frequency-domain approach also sheds new light on why rational inattention produces forward-looking behavior: inattentive agents are willing to accept more uncertainty about the timing of disturbances in exchange for less uncertainty about fluctuations at the most important frequencies.

Keywords: Rational inattention; Spectral analysis; Foresight (search for similar items in EconPapers)
JEL-codes: D83 D84 E21 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:208:y:2023:i:c:s0022053122001946

DOI: 10.1016/j.jet.2022.105604

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