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Sticky Information vs. Sticky Prices: A Horse Race in a DSGE Framework

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Mathias Trabandt

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Abstract

Mankiw and Reis (2002) have proposed sticky information as an alternative to Calvo sticky prices in order to model the conventional view that i) inflation reacts with delay and gradually to a monetary policy shock, ii) announced and credible disinflations are contractionary and iii) inflation accelerates with vigorous economic activity. We develop a fully-fledged DSGE model with sticky information and compare it to Calvo sticky prices, allowing also for dynamic inflation indexation as in Christiano, Eichenbaum and Evans (2001). We find that both models do equally well in delivering the conventional view

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Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 543.

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Date of creation: 2004
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Handle: RePEc:red:sed004:543

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Related research
Keywords: sticky information; sticky prices; inflation indexation; DSGE;

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Find related papers by JEL classification:
E0 - Macroeconomics and Monetary Economics - - General
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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References listed on IDEAS
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  1. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
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  1. Peng-fei Wang & Yi Wen, 2006. "Inflation dynamics: a cross-country investigation," Working Papers 2005-076, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  2. Arslan, Mesut Murat, 2007. "Dynamics of Sticky Information and Sticky Price Models in a New Keynesian DSGE Framework," MPRA Paper 5269, University Library of Munich, Germany. [Downloadable!]
  3. Peng-fei Wang & Yi Wen, 2006. "Solving linear difference systems with lagged expectations by a method of undetermined coefficients," Working Papers 2006-003, Federal Reserve Bank of St. Louis. [Downloadable!]
  4. Alexander Meyer-Gohde, 2008. "The Natural Rate Hypothesis and Real Determinacy," SFB 649 Discussion Papers SFB649DP2008-054, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
  5. Javier Andrés & David López-Salido & Edward Nelson, 2005. "Sticky-Price Models and the Natural Rate Hypothesis," Banco de España Working Papers 0521, Banco de España. [Downloadable!]
    Other versions:
  6. Alexander Meyer-Gohde, 2007. "Solving Linear Rational Expectations Models with Lagged Expectations Quickly and Easily," SFB 649 Discussion Papers SFB649DP2007-069, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
    Other versions:
  7. Lanne, Markku & Luoma, Arto & Luoto, Jani, 2008. "A Naïve Sticky Information Model of Households’ Inflation Expectations," MPRA Paper 8663, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  8. Olivier Coibion, 2006. "Inflation Inertia in Sticky Information Models," Contributions to Macroeconomics, Berkeley Electronic Press, vol. 6(1), pages 1374-1374. [Downloadable!] (restricted)
  9. Jesús Antonio Bejarano Rojas, 2005. "Estimación Estructural Y Análisis De La Curva De Phillips Neokeynesiana Para Colombia," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE. [Downloadable!]
  10. Oleg Korenok & Stanislav Radchenko & Norman R. Swanson, 2006. "International Evidence on the Efficacy of new-Keynesian Models of Inflation Persistence," Working Papers 0602, VCU School of Business, Department of Economics. [Downloadable!]
    Other versions:
  11. Norman Swanson & Oleg Korenok, 2006. "How Sticky Is Sticky Enough? A Distributional and Impulse Response Analysis of New Keynesian DSGE Models. Extended Working Paper Version," Departmental Working Papers 200612, Rutgers University, Department of Economics. [Downloadable!]
  12. Bruchez, Pierre-Alain, 2007. "A Hybrid Sticky-Price and Sticky-Information Model," MPRA Paper 3540, University Library of Munich, Germany. [Downloadable!]
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