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The macroeconomic effects of infrequent information with adjustment costs

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Author Info
Marco Bonomo
René Garcia

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Abstract

We extend the macroeconomic literature on -type rules by introducing infrequent information in a kinked adjustment-cost model. We first show that optimal individual decision rules are both state and time dependent. We then develop an aggregation framework to study the macroeconomic implications of such optimal individual decision rules. In our model, a vast number of agents act together, and more so when uncertainty is large. The average effect of an aggregate shock is inversely related to its size and to aggregate uncertainty. These results contrast with those obtained with full information adjustment cost models.

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File URL: http://economics.ca/cgi/xms?jab=v34n1/02.pdf
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Publisher Info
Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 34 (2001)
Issue (Month): 1 (February)
Pages: 18-35
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Handle: RePEc:cje:issued:v:34:y:2001:i:1:p:18-35

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Find related papers by JEL classification:
E0 - Macroeconomics and Monetary Economics - - General
E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

Cited by:
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  1. Rene Garcia & Marco Bonomo, 2004. "Optimal Rules under Adjustment Cost and Infrequent Information," Econometric Society 2004 Latin American Meetings 135, Econometric Society. [Downloadable!]
  2. Marco Bonomo & Carlos Carvalho, 2004. "Endogenous Time-Dependent Rules and Inflation Inertia," Macroeconomics 0402005, EconWPA, revised 19 May 2005. [Downloadable!]
    Other versions:
  3. Sergio A. Lago Alves & Mirta N. S. Bugarin, 2006. "The Role of Consumer's Risk Aversion on Price Rigidity," Working Papers Series 121, Central Bank of Brazil, Research Department. [Downloadable!]
    Other versions:
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