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Information Flows and Aggregate Persistence

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  • Oleksiy Kryvtsov

Abstract

Models with imperfect information that generate persistent monetary nonneutrality predominantly rely on assumptions leading to substantial heterogeneity of information across price-setters. This paper develops a quantitative general equilibrium model in which the degree of heterogeneity of information is determined endogenously. In the model, firms use two technologies to acquire information: costly updating to full information and costless learning from publicly observed market signals. Price changes of firms that update information infrequently are synchronized with market signals. This leads to an externality whereby less frequent updating increases the information conveyed by prices and quantities. When the model is calibrated to moments from a panel of BLS commodity sectors, it is found that the private value of costly updating to full information is close to zero, market signals are informative, and the real effects of monetary shocks are small.

Suggested Citation

  • Oleksiy Kryvtsov, 2009. "Information Flows and Aggregate Persistence," Staff Working Papers 09-11, Bank of Canada.
  • Handle: RePEc:bca:bocawp:09-11
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    Cited by:

    1. Rene Garcia & Carlos Carvalho & Marco Bonomo, 2013. "Time- and State-Dependent Pricing: A Unified Framework," 2013 Meeting Papers 759, Society for Economic Dynamics.

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    More about this item

    Keywords

    Business fluctuations and cycles; Inflation and prices; Transmission of monetary policy;
    All these keywords.

    JEL classification:

    • 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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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