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 behaviour.First,I find the conditions under which the producer prefers to set a plan for the price he or she charges,or instead prefers to set a plan for the quantity he or she sells.Second,I show that the agent rationally chooses to be inattentive to news,only sporadically updating his or her information.I solve for the optimal length of inattentiveness and characterize its determinants.Third,I explicitly aggregate the behaviour 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.
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