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A Sticky-Dispersed Information Phillips Curve: a model with partial and delayed information

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  • Marta Areosa
  • Waldyr Areosa
  • Vinicius Carrasco

Abstract

We study the interaction between dispersed and sticky information by assuming that firms receive private noisy signals about the state in an otherwise standard model of price setting with sticky-information. We compute the unique equilibrium of the game induced by the firms' pricing decisions and derive the resulting Phillips curve. The main effect of dispersion is to magnify the immediate impact of a given shock when the degree of stickiness is small. Its effect on persistence is minor: even when information is largely dispersed, a substantial amount of informational stickiness is needed to generate persistence in aggregate prices and inflation.

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Bibliographic Info

Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 276.

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Date of creation: Apr 2012
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Handle: RePEc:bcb:wpaper:276

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  1. George-Marios Angeletos & Jennifer La'O, 2009. "Incomplete Information, Higher-Order Beliefs and Price Inertia," NBER Working Papers 15003, National Bureau of Economic Research, Inc.
  2. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678.
  3. Mario J. Crucini & Mototsugu Shintani & and Takayuki Tsuruga, 2008. "Accounting for Persistence and Volatility of Good-level Real Exchange Rates: The Role of Sticky Information," IMES Discussion Paper Series 08-E-05, Institute for Monetary and Economic Studies, Bank of Japan.
  4. Felipe Schwartzman & Carlos Carvalho, 2008. "Heterogeneous Price Setting Behavior and Monetary Non-neutrality: Some General Results," 2008 Meeting Papers 1040, Society for Economic Dynamics.
  5. Christopher D. Carroll, 2003. "Macroeconomic Expectations Of Households And Professional Forecasters," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 269-298, February.
  6. Eric van Wincoop & Philippe Bacchetta, 2003. "Can Information Heterogeneity Explain the Exchange Rate Determination Puzzle?," NBER Working Papers 9498, National Bureau of Economic Research, Inc.
  7. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," Harvard Institute of Economic Research Working Papers 1922, Harvard - Institute of Economic Research.
  8. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
  9. Venky Venkateswaran & Christian Hellwig, 2009. "Setting The Right Prices for the Wrong Reasons," 2009 Meeting Papers 260, Society for Economic Dynamics.
  10. Ricardo Reis, 2009. "Optimal Monetary Policy Rules in an Estimated Sticky-Information Model," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(2), pages 1-28, July.
  11. Grossman, Sanford J, 1981. "An Introduction to the Theory of Rational Expectations under Asymmetric Information," Review of Economic Studies, Wiley Blackwell, vol. 48(4), pages 541-59, October.
  12. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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Cited by:
  1. Waldyr Areosa & Marta Areosa, 2012. "Information (in) Chains: information transmission through production chains," Working Papers Series 286, Central Bank of Brazil, Research Department.
  2. Angelo Marsiglia Fasolo, 2012. "A Note on Particle Filters Applied to DSGE Models," Working Papers Series 281, Central Bank of Brazil, Research Department.
  3. Bruno Martins, 2012. "Local Market Structure and Bank Competition: evidence from the Brazilian auto loan market," Working Papers Series 299, Central Bank of Brazil, Research Department.
  4. Marta Areosa & Waldyr Areosa, 2012. "Asset Prices and Monetary Policy – A sticky-dispersed information model," Working Papers Series 285, Central Bank of Brazil, Research Department.

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