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

Hassan Afrouzi

No 8218, CESifo Working Paper Series from CESifo

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.

Keywords: rational inattention; inflation expectations; oligopolistic competition; inflation dynamics; monetary non-neutrality (search for similar items in EconPapers)
JEL-codes: E31 E32 E71 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-bec, nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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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 (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8218

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