Strategic Inattention, Inflation Dynamics, and the Non-Neutrality of Money

Hassan Afrouzi

No 31796, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies how competition affects firms’ expectations in a new dynamic general equilibrium model with rational inattention and oligopolistic competition where firms acquire information about their competitors’ beliefs. In the model, firms with fewer competitors are less attentive to aggregate variables—a novel prediction supported by survey evidence. A calibrated version of the model matches the relationship between firms’ numbers of competitors and their uncertainty about aggregate inflation as a non-targeted moment. A quantitative exercise reveals that firms’ strategic inattention to aggregates significantly amplifies monetary non-neutrality and shifts output response disproportionately towards less competitive oligopolies by distorting relative prices.

JEL-codes: E31 E32 E71 (search for similar items in EconPapers)
Date: 2023-10
New Economics Papers: this item is included in nep-com, nep-dge, nep-mac and nep-mon
Note: EFG ME
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Strategic Inattention, Inflation Dynamics, and the Nonneutrality of Money (2024)
Working Paper: Strategic Inattention, Inflation Dynamics, and the Non-Neutrality of Money (2020)
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