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...

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...

Recent research has shown that the "spirit of capitalism"--a preference for wealth itself, in addition to consumption--has important implications for growth and asset pricing. This paper explores how the spirit of capitalism affects saving and consumption behavior. We demonstrate that the spirit...