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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...
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We propose a new theory of price rigidity based on firms' Knightian uncertainty about their competitive environment … industry-level inflation generates nominal rigidity. We prove the main insights analytically and quantify the effects of our …
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