Discrete Actions in Information-Constrained Tracking Problems
Filip Matejka and
Christopher Sims ()
CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague
Optimal actions of an agent facing a Shannon capacity constraint on the translation of an uncertain signal into an action can easily turn out to be discretely distributed, even when the objective function and the initial distribution of uncertainty contain no discrete elements. We show this result analytically in a broad class of cases. It has implications for the interpretation of observed intervals between changes in prices or other economic choice variables in micro-data as indicators of costs of adjustment or of the degree of “stickiness” in responses to aggregate policy changes or business cycle fluctuations.
Keywords: rational inattention; adjustment frictions; sticky prices (search for similar items in EconPapers)
JEL-codes: D81 D83 E52 (search for similar items in EconPapers)
References: View complete reference list from CitEc
Citations: View citations in EconPapers (14) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cer:papers:wp441
Access Statistics for this paper
More papers in CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague Contact information at EDIRC.
Bibliographic data for series maintained by Jana Koudelkova ().