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A Sticky-Information General-Equilibrium Model for Policy Analysis

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  • Ricardo Reis

Abstract

This paper presents a dynamic stochastic general-equilibrium model with a single friction in all markets: sticky information. In this economy, agents are inattentive because of costs of acquiring, absorbing and processing information, so that the actions of consumers, workers and firms are slow to incorporate news. This paper presents the details of how an economy with pervasive inattentiveness functions, and develops a set of algorithms that solve the model quickly. It then applies these to estimate the model using data for the United States post-1986 and for the Euro-area post-1993, and to conduct counterfactual policy experiments. The end result is a laboratory that is rich enough to account for the dynamics of at least five macroeconomic series (inflation, output, hours, interest rates, and wages), and which can be used to inform applied monetary policy.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14732.

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Date of creation: Feb 2009
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Handle: RePEc:nbr:nberwo:14732

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Citations

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Cited by:
  1. Alexander Meyer-Gohde, 2007. "Solving Linear Rational Expectations Models with Lagged Expectations Quickly and Easily," SFB 649 Discussion Papers SFB649DP2007-069, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. Gomes, Orlando, 2012. "Thought experimentation and the Phillips curve," Research in Economics, Elsevier, vol. 66(1), pages 45-64.
  3. Verona, Fabio & Wolters, Maik H., 2013. "Sticky information models in Dynare," Economics Working Papers 2013-02, Christian-Albrechts-University of Kiel, Department of Economics.
  4. F. Verona & M. M. F. Martins & I. Drumond, 2013. "(Un)anticipated Monetary Policy in a DSGE Model with a Shadow Banking System," International Journal of Central Banking, International Journal of Central Banking, vol. 9(3), pages 78-124, September.
  5. Leonardo Melosi, 2009. "A Likelihood Analysis of Models with Information Frictions," 2009 Meeting Papers 1034, Society for Economic Dynamics.
  6. Verona, Fabio, 2013. "Lumpy investment in sticky information general equilibrium," Research Discussion Papers 16/2013, Bank of Finland.
  7. Leonardo Melosi, 2011. "Public's Inflation Expectations and Monetary Policy," 2011 Meeting Papers 1151, Society for Economic Dynamics.
  8. Giovannini, Enrico & Malgarini, Marco, 2012. "What do Italian consumers know about Economic Data? An analysis based on the ISTAT Consumers Survey," MPRA Paper 54125, University Library of Munich, Germany, revised 2014.
  9. Gomes, Orlando, 2013. "Information stickiness on general equilibrium and endogenous cycles," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 7(4), pages 1-43.
  10. Orlando Gomes, 2012. "Endogenous Heterogeneity, the Propagation of Information and Macroeconomic Complexity," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 6(1), pages 38-58, March.
  11. Orlando Gomes, 2012. "Transitional Dynamics in Sticky-Information General Equilibrium Models," Computational Economics, Society for Computational Economics, vol. 39(4), pages 387-407, April.
  12. Verona, Fabio, 2013. "Investment dynamics with information costs," Research Discussion Papers 18/2013, Bank of Finland.

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