Remembering Perry Mehrling

It is with deepest sadness and regret that we learned of the passing of Dr. Perry Mehrling. Dr. Mehrling played a vital role in INET and its Young Scholar Initiative (YSI) for many years. We were looking forward with hopeful anticipation to working with him far into the future. Alas, it was not to be. Over the next few months, INET and YSI will be organizing a series of tribute to Dr. Mehrling. In the meantime, we gratefully reprint with permission the warm and generous appreciation of our long time colleague just published by our friends at the History of Economics Society.

FEDS Paper: Inattentive Price Setting and Inflation Under Fiscal Policy Uncertainty

Oliver Pfäuti and Edson WuHow do high public debt and fiscal uncertainty interact to shape inflation? We develop a model in which firms face uncertainty about both marginal costs and fiscal policy and choose how much information to acquire before setting prices. Higher debt raises steady-state taxes, affecting attention through two opposing forces. While these taxes reduce the profit stakes of mispricing, they make desired prices more sensitive to tax fluctuations, increasing the value of information.

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