Ceiling-Martel Hall

Rational Inattention in the Frequency Domain

Kyle Jurado, Duke University

Project Description/Abstract

This paper solves the canonical dynamic rational inattention tracking problem by formulating it in the frequency domain. The main result is a new rational inattention version of the classical Wiener-Kolmogorov filter. The paper shows how to use the filter to obtain closed-form expressions in several examples, and provides a simple frequency-domain algorithm to implement it numerically. In an application, it is shown how this algorithm can be used to solve a benchmark equilibrium model of the real effects of nominal disturbances.

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