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Academic Programs

”I develop a model of inflation attentiveness: rationally inattentive agents can alleviate the distortionary impact of inflation through endogenous information acquisition. The model consists of two key ingredients: (i) Shapley-Shubik (1977) trading posts, which permits the existence of micro-founded monetary equilibria; and (ii) market segmentation — a restriction on the set of permissible trades — which is necessary for information acquisition to be valuable. I find that high inflation limits the scope of information acquisition in two ways: (i) at the extensive margin, the set of segmented equilibria shrinks, (ii) at the intensive margin, inflation reduces the net value of information, as agents face higher cognitive costs and eventually abandon information acquisition altogether. This suggests that increases from moderate to high inflation can have a substantial impact on efficiency. My analysis highlights the role of inflation and aggregate uncertainty for policy.”