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Sticky Price And Sticky Information Price-Setting Models: What Is The Difference?

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  • BENJAMIN D. KEEN

Abstract

"Using a partial equilibrium framework, Mankiw and Reis show that a sticky information model can generate a lagged and gradual inflation response after a monetary policy shock, whereas a sticky price model cannot. Our study demonstrates that the finding is sensitive to their model's parameterization. To determine a plausible parameterization, we specify a general equilibrium model with sticky information. In that model, we find that inflation peaks only one period after a monetary disturbance. A sensitivity analysis of our results reveals that the inflation peak is delayed by including real rigidities when the monetary policy instrument is money growth, whereas inflation peaks immediately when the policy instrument is the nominal interest rate. "("JEL "E31, E32, E52) Copyright 2007 Western Economic Association International.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 45 (2007)
Issue (Month): 4 (October)
Pages: 770-786

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Handle: RePEc:bla:ecinqu:v:45:y:2007:i:4:p:770-786

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Cited by:
  1. Benjamin D. Keen & Evan F. Koenig, 2009. "How robust are popular models of nominal frictions?," Working Papers 0903, Federal Reserve Bank of Dallas.
  2. Verona, Fabio & Wolters, Maik H., 2013. "Sticky information models in Dynare," Economics Working Papers 2013-02, Christian-Albrechts-University of Kiel, Department of Economics.
  3. Peng-fei Wang & Yi Wen, 2005. "Another look at sticky prices and output persistence," Working Papers 2005-051, Federal Reserve Bank of St. Louis.
  4. Bruchez, Pierre-Alain, 2007. "A Hybrid Sticky-Price and Sticky-Information Model," MPRA Paper 3540, University Library of Munich, Germany.
  5. Francesco Giuli, 2007. "Robust control in a Sticky information economy," Working Papers 98, University of Rome La Sapienza, Department of Public Economics.
  6. 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.
  7. Peng-fei Wang & Yi Wen, 2006. "Inflation dynamics: a cross-country investigation," Working Papers 2005-076, Federal Reserve Bank of St. Louis.
  8. Javier Andres & J. David López-Salido & Edward Nelson, 2005. "Sticky-price models and the natural rate hypothesis," Working Papers 2005-018, Federal Reserve Bank of St. Louis.
  9. Arslan, M. Murat, 2010. "Relative importance of sticky prices and sticky information in price setting," Economic Modelling, Elsevier, vol. 27(5), pages 1124-1135, September.
  10. Meyer-Gohde, Alexander, 2010. "Linear rational-expectations models with lagged expectations: A synthetic method," Journal of Economic Dynamics and Control, Elsevier, vol. 34(5), pages 984-1002, May.
  11. 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.
  12. Alexander Meyer-Gohde, 2008. "The Natural Rate Hypothesis and Real Determinacy," SFB 649 Discussion Papers SFB649DP2008-054, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  13. Bennett T. McCallum, 2008. "Reconsideration of the P-Bar Model of Gradual Price Adjustment," NBER Working Papers 14163, National Bureau of Economic Research, Inc.

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