Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5098019 | Journal of Economic Dynamics and Control | 2017 | 20 Pages |
Abstract
In this paper we examine the effects of elastic information-processing capacity (or elastic attention) proposed in Sims (2010) on international consumption and income correlations in a tractable small open economy (SOE) model with exogenous income processes. We find that in the presence of capital mobility in financial markets, elastic attention due to a fixed information-processing cost lowers the international consumption correlations by generating heterogeneous consumption adjustments to income shocks across countries facing different macroeconomic uncertainty. In addition, we show that elastic attention can improve the model's predictions for the other key moments of the joint dynamics of consumption and income.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Wei Li, Yulei Luo, Jun Nie,