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Econometrica Vol. 90 No. 2 2022

Multivariate Rational Inattention

Jianjun Miao1; Jieran Wu2; Eric R. Young3,4

1 Department of Economics, Boston University · 2 Academy of Financial Research and College of Economics, Zhejiang University · 3 Department of Economics, University of Virginia · 4 Research Department, Federal Reserve Bank of Cleveland

Abstract

We study optimal control problems in the multivariate linear‐quadratic‐Gaussian framework under rational inattention. We propose a three‐step procedure to solve this problem using semidefinite programming and derive the optimal signal structure without strong prior restrictions. We analyze both the transition dynamics of the optimal posterior covariance matrix and its steady state. We characterize the optimal information structure for some special cases and develop numerical algorithms for general cases. Applying our methods to solve three multivariate economic models, we obtain some results qualitatively different from the literature.

DOI
10.3982/ecta18086
Volume
90
Issue
2
Pages
907-945
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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