In the paper, a model of the firm with a delayed adjustment of prices and supply is analyzed. Prices and supply are determined under uncertainty about the location of the demand curve. Three models are distinguished: a price setting with predetermined supply, supply determination with...

This paper presents a model in which price setting firms decide what to pay attention to, subject to a constraint on information flow. When idiosyncratic conditions are more variable or more important than aggregate conditions, firms pay more attention to idiosyncratic conditions than to...