This paper explores how the introduction of rational inattention (RI) -- that agents process information subject to finite channel capacity -- affects optimal consumption and investment decisions in an otherwise standard intertemporal model of portfolio choice. We first explicitly derive optimal...

This paper studies consumption dynamics and welfare losses under information processing constraints (it is also called 'rational inattention' (RI) in Sims (2003)) in the permanent income hypothesis (PIH) model. It is shown that incorporating RI into the otherwise standard PIH model can...

This paper studies how "rational inattention (RI)" -- a type of information processing constraint proposed by Sims (2003) -- affects the joint dynamics of consumption and income in a permanent income model with general income processes. Specifically, I propose an analytical approach to solve the...

This paper explores how the introduction of Rational Inattention (RI) affects optimal consumption and portfolio rules and asset pricing in the consumption-based CAPM framework. I first solve an otherwise standard portfolio choice and asset pricing model with RI explicitly and show that RI can...

This paper introduces the rational inattention hypothesis (RI) -- that agents process information subject to finite channel constraints -- into a stochastic growth model with permanent technology shocks. We find that RI raises consumption volatility relative to output by introducing an...