Abstract
A constraint that actions can depend on observations only through a communication channel with finite Shannon capacity is shown to be able to play a role very similar to that of a signal extraction problem or an adjustment cost in standard control problems. The resulting theory looks enough like familiar dynamic rational expectations theories to suggest that it might be useful and practical, while the implications for policy are different enough to be interesting.
Original language | English (US) |
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Pages (from-to) | 665-690 |
Number of pages | 26 |
Journal | Journal of Monetary Economics |
Volume | 50 |
Issue number | 3 |
DOIs | |
State | Published - Apr 2003 |
All Science Journal Classification (ASJC) codes
- Finance
- Economics and Econometrics
Keywords
- Control theory
- Inertia
- Information theory
- Sticky prices