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.