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A Sticky-Information General-Equilibrium Model for Policy Analysis

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Ricardo Reis

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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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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)
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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  2. Jonas Dovern & Joerg Doepke & Ulrich Fritsche & Jirka Slacalek, 2006. "Sticky Information Phillips Curves: European Evidence," Macroeconomics and Finance Series 200604, Hamburg University, Department Wirtschaft und Politik. [Downloadable!]
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  29. Andres, Javier & Lopez-Salido, J. David & Nelson, Edward, 2005. "Sticky-price models and the natural rate hypothesis," Journal of Monetary Economics, Elsevier, vol. 52(5), pages 1025-1053, July. [Downloadable!] (restricted)
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  30. Oleg Korenok & Norman R. Swanson, 2005. "The Incremental Predictive Information Associated with Using Theoretical New Keynesian DSGE Models vs. Simple Linear Econometric Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(s1), pages 905-930, December. [Downloadable!] (restricted)
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  37. Jordi Galí, 2004. "On The Role of Technology Shocks as a Source of Business Cycles: Some New Evidence," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 372-380, 04/05. [Downloadable!] (restricted)
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  40. Oleg Korenok & Norman R. Swanson, 2007. "How Sticky Is Sticky Enough? A Distributional and Impulse Response Analysis of New Keynesian DSGE Models," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(6), pages 1481-1508, 09. [Downloadable!] (restricted)
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  49. Michael T. Kiley, 2007. "A Quantitative Comparison of Sticky-Price and Sticky-Information Models of Price Setting," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 101-125, 02. [Downloadable!] (restricted)
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  51. 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. [Downloadable!] (restricted)
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  52. Robert Rich & Joseph Tracy, 2006. "The relationship between expected inflation, disagreement, and uncertainty: evidence from matched point and density forecasts," Staff Reports 253, Federal Reserve Bank of New York. [Downloadable!]
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