Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/200518 
Year of Publication: 
2017
Series/Report no.: 
Working Paper No. 2017-14
Publisher: 
Federal Reserve Bank of Atlanta, Atlanta, Ga.
Abstract: 
We study the implications of overconfidence for price setting in a monopolistic competition setup with incomplete information. Our price-setters overestimate their abilities to infer aggregate shocks from private signals. The fraction of uninformed firms is endogenous; firms can obtain information by paying a fixed cost. We find two results: (1) overconfident firms are less inclined to acquire information, and (2) prices might exhibit excess volatility driven by nonfundamental noise. We explore the empirical predictions of our model for idiosyncratic price volatility.
Subjects: 
overconfidence
imperfect common knowledge
information acquisition
inflation volatility
JEL: 
D4
D8
E3
Document Type: 
Working Paper

Files in This Item:
File
Size
396.33 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.