This paper investigates a real-business-cycle economy that features dispersed informationabout the underlying aggregate productivity shocks, taste shocks, and—potentially—shocks tomonopoly power. We show how the dispersion of information can (i) contribute to significantinertia in the...

This paper investigates how incomplete information impacts the response of prices to nominalshocks. Our baseline model is a variant of the Calvo model in which firms observe the underlyingnominal shocks with noise. In this model, the response of prices is pinned down by threeparameters: the...