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Information Frictions and Monetary Policy


  • Filip Matejka

    () (CERGE-EI)


Real effects of monetary policy depend crucially on the nature of nominal rigidities. These rigidities are typically modelled as sticky prices with explicit assumptions on either frequency of price adjustments (Calvo-style models) or on the cost of adjustment (menu cost models). However, recent empirical work cast doubts on these workhorses of standard New Keynesian models. This paper discusses another approach to nominal frictions, which is based on the assumption that agents face difficulties processing information. If, for instance, price-setters learn about an interest rate cut with a delay, then their price also responds sluggishly. This rigidity implies positive temporary effects on output and unemployment. We conclude that models based on information frictions can account for several empirical facts other model have difficulties reconciling with, such as sluggish responses of both real and nominal variables, frequent but staggered price changes or a steeper Phillips curve and higher profit losses with more volatile environments. Moreover, rational inattention provides important implications for policy.

Suggested Citation

  • Filip Matejka, 2012. "Information Frictions and Monetary Policy," ACTA VSFS, University of Finance and Administration, vol. 6(1), pages 7-24.
  • Handle: RePEc:prf:journl:v:6:y:2012:i:1:p:7-24

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    More about this item


    nominal rigidity; information frictions; monetary economics;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy


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