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Pervasive Stickiness (Expanded Version)

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Author Info
Mankiw, N Gregory
Reis, Ricardo

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Abstract

This paper explores a macroeconomic model of the business cycle in which stickiness of information is pervasive. We start from a familiar benchmark classical model and add to it the assumption that there is sticky information on the part of consumers, workers, and firms. We evaluate the model against three key facts that describe short-run fluctuations: the acceleration phenomenon, the smoothness of real wages, and the gradual response of real variables to shocks. We find that pervasive stickiness is required to fit the facts. We conclude that models based on stickiness of information offer the promise of fitting the facts on business cycles while adding only one new plausible ingredient to the classical benchmark.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5521.

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Date of creation: Mar 2006
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Handle: RePEc:cpr:ceprdp:5521

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Keywords: business cycles sticky information

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Find related papers by JEL classification:
E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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References listed on IDEAS
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  1. Glenn D. Rudebusch, 2001. "Term structure evidence on interest rate smoothing and monetary policy inertia," Working Papers in Applied Economic Theory 2001-02, Federal Reserve Bank of San Francisco. [Downloadable!]
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  2. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information Versus Sticky Prices: A Proposal To Replace The New Keynesian Phillips Curve," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1295-1328, November. [Downloadable!] (restricted)
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  3. Jonathan A. Parker and Christian Julliard, 2005. "Consumption Risk and the Cross Section of Expected Returns," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 185-222, February.
    Other versions:
  4. Ricardo Reis, 2004. "Inattentive Consumers," NBER Working Papers 10883, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Xavier Gabaix & David Laibson, 2002. "The 6D Bias and the Equity Premium Puzzle," Harvard Institute of Economic Research Working Papers 1947, Harvard - Institute of Economic Research. [Downloadable!]
  6. Ricardo Reis, 2006. "Inattentive Producers," Review of Economic Studies, Blackwell Publishing, vol. 73(3), pages 793-821, 07. [Downloadable!] (restricted)
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  7. Susanto Basu & John G. Fernald, 1995. "Aggregate Productivity and the Productivity of Aggregates," NBER Working Papers 5382, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Lucas, Robert E, Jr & Rapping, Leonard A, 1969. "Real Wages, Employment, and Inflation," Journal of Political Economy, University of Chicago Press, vol. 77(5), pages 721-54, Sept./Oct. [Downloadable!] (restricted)
  9. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information: A Model of Monetary Nonneutrality and Structural Slumps," Harvard Institute of Economic Research Working Papers 1941, Harvard - Institute of Economic Research. [Downloadable!]
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  10. Michael Woodford, 1994. "Structural Slumps," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1784-1815, December. [Downloadable!] (restricted)
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