This paper proposes a mechanism leading to rigid pricing as an optimal strategy. It applies a framework of rational inattention to study the pricing strategies of a monopolistic seller facing a consumer with limited information capacity. The consumer needs to process information about prices,...

This paper presents a model of a rationally inattentive seller responding to shocks to unit input cost. The model generates price series imultaneously exhibiting all three of the following features that can be found in the data. 1) Prices change frequently. 2) Responses of prices to aggregate...

in less stable aggregate conditions.

This paper proposes a mechanism leading to rigid pricing as an opti- mal strategy. It applies a framework of rational inattention to study the pricing strategies of a monopolistic seller facing a consumer with limited information capacity. The consumer needs to process information about prices,...

The prevailing neo‐Wicksellian view holds that the central bank's objective is to track the natural rate of interest ( r *), which itself is largely exogenous to monetary policy. We challenge this view using a fixed‐cost model of durable consumption demand, in which...