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Optimal policy under uncertainty and rational inattention

  • This paper generalizes the theory of policy uncertainty with the new literature on rational inattention. First, the model demonstrates that inattention is dependent on the signal variance and the policy parameter. Second, I discover a novel trade-off showing that a policy instrument mitigates attention. Third, the policy instrument is non-linear and reciprocal to both the size and variance of the signal. The unifying theory creates new implications to economic theory and public policy alike.

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Name:Herzog, Bodo
Erschienen in:Research in international business and finance
Place of publication:Amsterdam
Document Type:Article
Year of Publication:2019
Tag:policy uncertainty; rational inattention; trade-off; unifying modelling
First Page:444
Last Page:449
Dewey Decimal Classification:650 Management
Open Access:Nein