Inattentive producers
By: Ricardo Reis.
Contributors: National Bureau of Economic Research.
Series: NBER working paper paper series -- no. 11820.; Working paper series (National Bureau of Economic Research) -- working paper no. 11820.
Publisher: National Bureau of Economic Research
Published: 2005
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 35
Subjects: Prices -- Econometric models; Inflation (Finance) -- Econometric models
Description: "I present and solve the problem of a producer who faces costs of acquiring, absorbing, and processing information.  I establish a series of theoretical results describing the producer's behavior.  First, I find the conditions under which she prefers to set a plan for the price she charges, or instead prefers to set a plan for the quantity she sells.  Second, I show that the agent rationally chooses to be inattentive to news, only sporadically updating her information.  I solve for the optimal length of inattentiveness and characterize its determinants.  Third, I explicitly aggregate the behavior of many such producers.  I apply these results to a model of inflation.  I find that the model can fit the quantitative facts on post-war inflation remarkably well, that it is a good forecaster of future inflation, and that it survives the Lucas critique by fitting also the pre-war facts on inflation moderately well"--National Bureau of Economic Research web site.
Notes: "December 2005."

Includes bibliographical references (p. 33-35).

Also available in PDF from the NBER world wide web site (www.nber.org).