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Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve

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N. Gregory Mankiw
Ricardo Reis

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Abstract

This paper examines a model of dynamic price adjustment based on the assumption that information disseminates slowly throughout the population. Compared to the commonly used sticky-price model, this sticky-information model displays three, related properties that are more consistent with accepted views about the effects of monetary policy. First, disinflations are always contractionary (although announced disinflations are less contractionary than surprise ones). Second, monetary policy shocks have their maximum impact on inflation with a substantial delay. Third, the change in inflation is positively correlated with the level of economic activity.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8290.

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Date of creation: May 2001
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Handle: RePEc:nbr:nberwo:8290

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E0 - Macroeconomics and Monetary Economics - - General
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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