Endogenous information , menu costs and inflation persistence

  title={Endogenous information , menu costs and inflation persistence},
  author={Yuriy Gorodnichenko},
This paper develops a model where firms make state-dependent decisions on both pricing and acquisition of information. It is shown that when information is not perfect, menu costs combined with the aggregate price level serving as an endogenous public signal generate rigidity in price setting even when there is no real rigidity. Specifically, firms reveal their information to other firms by changing their prices. Because the cost of changing prices is borne by a firm but the benefit from better… CONTINUE READING
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