Real price variability depreciates the information about future prices contained in current ones. Repeat-purchase customers have, then, less incentive to acquire price information. The fact that consumers are less well informed allows firms to increase their markups and permits inefficient producers to increase their sales. Production gets reallocated toward higher-cost firms. Given the well-documented correlation between inflation and relative price variability, these results help explain some of the costs of inflation.

Real price variability depreciates the information about future prices contained in current ones. Repeat-purchase customers have, then, less incentive to acquire price information. The fact that consumers are less well informed allows firms to increase their markups and permits inefficient producers to increase their sales. Production gets reallocated toward higher-cost firms. Given the well-documented correlation between inflation and relative price variability, these results help explain some of the costs of inflation.

Substantial policy changes (like market-oriented reforms by populist parties and steps towards peace by "hawks") are sometimes implemented by "unlikely" parties. To account for such episodes this paper develops a framework in which incumbent politicians have better information about the state of the world than voters. The incumbent is unable to credibly transmit all this information since voters are also imperfectly informed about his ideology. This paper identifies conditions under which an incumbent party's electoral prospects increase the more atypical the policy it proposes. Popular support for a policy, or its "credibility," depends on the policy maker-policy pair.