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

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  • Arslan, Mesut Murat

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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Keywords: Monetary policy; Sticky information; Sticky prices; Phillips curve;

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Cited by:
  1. Arslan, M. Murat, 2010. "Relative importance of sticky prices and sticky information in price setting," Economic Modelling, Elsevier, Elsevier, vol. 27(5), pages 1124-1135, September.
  2. Jan-Oliver Menz & Lena Vogel, 2009. "A Detailed Derivation of the Sticky Price and Sticky Information New Keynesian DSGE Model," Macroeconomics and Finance Series, Hamburg University, Department Wirtschaft und Politik 200902, Hamburg University, Department Wirtschaft und Politik.

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