In this paper we examine the effects of two types of information imperfections, robustness (RB) and finite information-processing capacity (called rational inattention or RI), on international consumption correlations in an otherwise standard small open economy model. We show that in the...

In this paper we examine the effects of model misspecification (robustness or RB) on international consumption correlations in two otherwise standard small open economy models: one with perfect state observation and the other with imperfect state observation. We show that in the presence of...

In this paper we examine the effects of two types of information imperfections, robustness (RB) and finite information-processing capacity (called rational inattention or RI), on international consumption correlations in an otherwise standard small open economy model. We show that in the...

This paper derives the general equilibrium effects of rational inattention (or RI; Sims 2003, 010) in a model of incomplete income insurance (Huggett 1993, Wang 2003). We first show that, under the assumption of CARA utility with Gaussian shocks, the permanent income hypothesis (PIH) arises in...

In this paper we examine the effects of two types of information imperfections, robustness (RB) and finite information-processing capacity (called rational inattention or RI), on international consumption correlations in an otherwise standard small open economy model. We show that in the...

We propose a recursive utility version of a basic Huggett (1993) model to study the implications of rational inattention (or RI, Sims 2003, 2010) for the cross-sectional dispersion of consumption and wealth (relative to income) in general equilibrium. We find that incorporating RI can...

Recessions often have detrimental effects on both employment and equity returns, forcing individuals to make decisions about how to balance risks to their labor and capital income. In this paper, we study how individuals allocate their limited attention between capital income and labor income...