We examine the role of dispersed knowledge about fundamentals in the presence of
market-generated information. Our main theoretical result is a “Hayekian benchmark”,
de ned by conditions under which dispersed information has no e ect on outcomes. In
a nominal price-setting context, these conditions are met when rms set prices every
period after having seen contemporaneous market-generated information. When other
frictions (nominal frictions and/or information lags) make the rm’s decision problem
dynamic, departures from this benchmark arise to the extent there are strategic inter-
actions in rm’s pricing decisions or di erences in the persistence of various shocks.
We examine the empirical signi cance of these results using a calibrated menu cost
model. We document a novel interaction between nominal and informational frictions.
Firms attribute aggregate nominal shocks to idiosyncratic factors, which are relatively
less persistent and so, make smaller price adjustments. Quantitatively, however, this
channel does not substantially increase monetary non-neutralities.