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Linear quadratic approximation of rationally inattentive control problems

Published online by Cambridge University Press:  08 November 2023

Jianjun Miao  and
Bo Zhang
Jianjun Miao*
Affiliation:
Department of Economics, Boston University, Boston, MA, USA
Bo Zhang
Affiliation:
Institute of Chinese Financial Studies, Southwestern University of Finance and Economics, Chengdu, China
*
Corresponding author: Jianjun Miao; Email: miaoj@bu.edu
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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.

Keywords

Rational inattentioninformation theorytracking problemoptimal controlentropynumerical methods
Type
Articles
Information
Macroeconomic Dynamics , First View , pp. 1 - 23
Copyright
© The Author(s), 2023. Published by Cambridge University Press

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Footnotes

†

We are grateful to two anonymous referees and an associate editor for helpful comments. Bo Zhang is grateful to the support by the Guanghua Talent Project of Southwestern University of Finance and Economics.

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