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Rationally inattentive macroeconomic wedges

Antonella Tutino ()

No 1005, Working Papers from Federal Reserve Bank of Dallas

Abstract: This paper argues that the solution to a dynamic optimization problem of consumption and labor under finite information-processing capacity can simultaneously explain the intertemporal and intratemporal labor wedges. It presents a partial equilibrium model, where a representative risk adverse consumer chooses information about wealth with limited attention. The paper compares ex-post realizations of models with finite and infinite capacity. The model produces macroeconomic wedges and measures of elasticity consistent with the literature. These findings suggest that a consumption-labor model with information-processing constraints can explain the difference between predicted and observed consumption and employment behavior.

Keywords: Consumption (Economics); Econometric models; Consumer behavior; Labor market (search for similar items in EconPapers)
Pages: 47 pages
Date: 2010, Revised 2010
New Economics Papers: this item is included in nep-mac and nep-mic
Note: Published as: Tutino, Antonella (2011), "Rationally Inattentive Macroeconomic Wedges," Journal of Economic Dynamics and Control 35 (3): 344-362.
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