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Dynamics of Sticky Information and Sticky Price Models in a New Keynesian DSGE Framework

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Author Info
Arslan, M.Murat

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Abstract

Recent literature on monetary policy analysis extensively uses the sticky price model of price adjustment in a New Keynesian Macroeconomic framework. This price setting model, however, has been criticized for producing implausible results regarding inflation and output dynamics. This paper examines and compares dynamic responses of the sticky price and sticky information models to a cost-push shock in a New Keynesian DSGE framework. It finds that the sticky information model produces more reasonable dynamics through lagged, gradual and hump-shaped responses to a shock as observed in data. However, these responses depend on the persistence of the shock.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5269.

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Date of creation: Aug 2007
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Handle: RePEc:pra:mprapa:5269

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Related research
Keywords: Monetary policy Sticky information Sticky prices Phillips curve

Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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  2. Trabandt, Mathias, 2007. "Sticky Information vs. Sticky Prices: A Horse Race in a DSGE Framework," Working Paper Series 209, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
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