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A quantitative comparison of sticky-price and sticky-information models of price setting

  • Michael T. Kiley

This paper presents baseline sticky-price and sticky-information models of price-setting, and modifies each to incorporate some “rule-of-thumb†price-setters that index to inflation over recent periods. These models are estimated for the United States via maximum-likelihood techniques. While the baseline sticky-information model generates a bit more endogenous inertia in inflation than the baseline sticky-price model, its overall fit is worse. The results point toward substantial gains in terms of fit for hybrid models with indexation that smoothes through quarterly volatility in inflation and clarify the relative performance of recent sticky-information models proposed in the literature

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Article provided by Board of Governors of the Federal Reserve System (U.S.) in its journal Proceedings.

Volume (Year): (2005)
Issue (Month): ()
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Handle: RePEc:fip:fedgpr:y:2005:x:15
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  1. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky information versus sticky prices: a proposal to replace the New-Keynesian Phillips curve," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
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  18. L. Slifman & C. Corrado, 1996. "Decomposition of productivity and unit costs," Staff Studies 1, Board of Governors of the Federal Reserve System (U.S.).
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