Incomplete Information, Higher Order Beliefs, and Price Inertia

@article{Angeletos2009IncompleteIH,
  title={Incomplete Information, Higher Order Beliefs, and Price Inertia},
  author={G. Angeletos and Jennifer La'O},
  journal={Microeconomics: Information},
  year={2009}
}
The question that motivates this paper is how incomplete information impacts the response of prices to nominal shocks. Our baseline model is a variant of the Calvo model in which firms observe the underlying nominal shocks with noise. In this model, the response of prices is pinned down by three parameters: the precision of available information about the nominal shock, the frequency of price adjustment, and the degree of strategic complementarity in pricing decisions. This result synthesizes… Expand
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