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A Hybrid Sticky-Price and Sticky-Information Model

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  • Bruchez, Pierre-Alain

Abstract

This paper shows that a hybrid of the sticky-price and sticky-information models of price adjustment is able to deliver a hump-shaped inflation response to monetary shocks without counterfactually implying, as in Mankiw and Reis (2002) or Altig et al. (2005), that individual firms' prices change each quarter (whether they respond or not to the shock). Under the assumption that firms' price-setting decisions are strategically neutral, the inflation response to a transitory shock to the money-supply growth rate is hump-shaped for the hybrid model, whereas it is monotonic for both the sticky-price and sticky information models. If the shock is permanent, then this response is hump-shaped for the sticky-information and the hybrid models, whereas it is flat for the sticky-price model.

Suggested Citation

  • Bruchez, Pierre-Alain, 2007. "A Hybrid Sticky-Price and Sticky-Information Model," MPRA Paper 3540, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:3540
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    References listed on IDEAS

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    Cited by:

    1. Edward S. Knotek Ii, 2010. "A Tale of Two Rigidities: Sticky Prices in a Sticky-Information Environment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(8), pages 1543-1564, December.
    2. Carrillo, Julio A., 2012. "How well does sticky information explain the dynamics of inflation, output, and real wages?," Journal of Economic Dynamics and Control, Elsevier, vol. 36(6), pages 830-850.
    3. Torres Torres, Diego José, 2009. "The Dual Stickiness Model and Inflation Dynamics in Spain," MPRA Paper 18031, University Library of Munich, Germany.

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    More about this item

    Keywords

    hump-shaped impulse response; inflation persistence; Phillips curve; strategic complementarity;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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