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Pervasive Stickiness (Expanded Version)

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  • N. Gregory Mankiw
  • Ricardo Reis

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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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12024.

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Date of creation: Feb 2006
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Publication status: published as Mankiw, N. Gregory and Ricardo Reis. "Pervasive Stickiness," American Economic Review, 2006, v96(2,May), 164-169.
Handle: RePEc:nbr:nberwo:12024

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  1. Susanto Basu & John G. Fernald, 1995. "Aggregate Productivity and the Productivity of Aggregates," NBER Working Papers 5382, National Bureau of Economic Research, Inc.
  2. Glenn D. Rudebusch, 2001. "Term structure evidence on interest rate smoothing and monetary policy inertia," Working Paper Series, Federal Reserve Bank of San Francisco 2001-02, Federal Reserve Bank of San Francisco.
  3. Ricardo Reis, 2005. "Inattentive Producers," NBER Working Papers 11820, National Bureau of Economic Research, Inc.
  4. Michael Woodford, 1994. "Structural Slumps," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1784-1815, December.
  5. Mankiw, N. Gregory & Reis, Ricardo, 2002. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," Scholarly Articles 3415324, Harvard University Department of Economics.
  6. Ricardo Reis, 2004. "Inattentive Consumers," NBER Working Papers 10883, National Bureau of Economic Research, Inc.
  7. Xavier Gabaix & David Laibson, 2002. "The 6D Bias and the Equity-Premium Puzzle," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 257-330 National Bureau of Economic Research, Inc.
  8. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information: A Model of Monetary Nonneutrality and Structural Slumps," NBER Working Papers 8614, National Bureau of Economic Research, Inc.
  9. Jonathan A. Parker & Christian Julliard, 2005. "Consumption Risk and the Cross Section of Expected Returns," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 113(1), pages 185-222, February.
  10. Lucas, Robert E, Jr & Rapping, Leonard A, 1969. "Real Wages, Employment, and Inflation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 77(5), pages 721-54, Sept./Oct.
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