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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...
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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...
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We document four features of consumption and income microdata: 1) household-level consumption is as volatile as household income on average, 2) household-level consumption has a positive but small correlation with income, 3) many low-wealth households have marginal propensities to consume near...
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