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The S. C. Tsiang Macroeconomics Workshop: Bartosz Mackowiak

Thursday, September 7, 2017 at 11:40am to 1:10pm

Uris Hall, 498
Central Campus

Bartosz Mackowiak

European Central Bank

PDF icon The Rational Inattention Filter (joint w/Filip Matejka & Mirko Wiederholt)

 

Dynamic rational inattention problems used to be difficult to solve. This paper provides simple, analytical results for dynamic rational inattention problems. We start from the benchmark rational inattention problem. An agent tracks a variable of interest that follows a Gaussian process. The agent chooses how to pay attention to this variable. The agent aims to minimize, say, the mean squared error subject to a constraint on information flow, as in Sims (2003). We prove that if the variable of interest follows an ARMA(p,q) process, the optimal signal is about a linear combination of {Xt, . . . , Xt−p+1} and {εt, . . . , εt−q+1}, where Xt denotes the variable of interest and εt denotes its period t innovation. The optimal signal weights can be computed from a simple extension of the Kalman filter: the usual Kalman filter equations in combination with first-order conditions for the optimal signal weights. We provide several analytical results regarding those signal weights. We also prove the equivalence of several different formulations of the information flow constraint. We conclude with general equilibrium applications from
Macroeconomics.

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Event Type

Class/ Workshop

Departments

Economics

Tags

economics, EconSeminar, EconMacro

Contact E-Mail

alg5@cornell.edu

Contact Name

Amy Moesch

Contact Phone

607-255-5617

Speaker

Bartosz Mackowiak

Speaker Affiliation

European Central Bank

Open To

Cornell Economics Community (List Serve Members)