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The Macroeconomic Effects of Infrequent Information With Adjustment Costs

In the last decade, the potential macroeconomic effects of intermittent large adjustments in microeconomic variables such as prices, investment, consumption of durables or employment- a behaviour which may be justified by the presence of kinked adjustment costs- have been studied in models where economic agents continuously observe the optimal level of their decision variable. In this paper, we develop a simple model which introduces infrequent information in a kinked adjustment cost model by assuming that agents do not observe continuously the frictionless optimal level of the control variables.

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Paper provided by Centre interuniversitaire de recherche en économie quantitative, CIREQ in its series Cahiers de recherche with number 9716.

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Length: 28 pages
Date of creation: 1997
Date of revision:
Handle: RePEc:mtl:montec:9716
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  1. Ricardo J. Caballero & Eduardo M.R.A. Engel, 1992. "Price Rigidities, Asymmetries, and Output Fluctuations," NBER Working Papers 4091, National Bureau of Economic Research, Inc.
  2. Caballero, R. & Engel, E.M.R.A., 1991. "Heterogeneity and Output Fluctuations in a Dynamic Menu-Cost Economy," Discussion Papers 1991_16, Columbia University, Department of Economics.
  3. Caplin, A. & Leahy, J., 1989. "State-Dependent Pricing And The Dynamics Of Money And Output," Discussion Papers 1989_32, Columbia University, Department of Economics.
  4. Andrew C. Caplin & Daniel F. Spulber, 1987. "Menu Costs and the Neutrality of Money," NBER Working Papers 2311, National Bureau of Economic Research, Inc.
  5. Caballero, Ricardo J & Engel, Eduardo M R A & Haltiwanger, John, 1997. "Aggregate Employment Dynamics: Building from Microeconomic Evidence," American Economic Review, American Economic Association, vol. 87(1), pages 115-37, March.
  6. Laurence Ball & Stephen G. Cecchetti, 1987. "Imperfect Information and Staggered Price Setting," NBER Working Papers 2201, National Bureau of Economic Research, Inc.
  7. Bertola, G. & Caballero, R.J., 1990. "Kinked Adjustment Costs And Aggregate Dynamics," Discussion Papers 1990_20, Columbia University, Department of Economics.
  8. Ball, Laurence & Mankiw, N Gregory, 1994. "Asymmetric Price Adjustment and Economic Fluctuations," Economic Journal, Royal Economic Society, vol. 104(423), pages 247-61, March.
  9. Caplin, Andrew & Leahy, John, 1994. "Business as Usual, Market Crashes, and Wisdom after the Fact," American Economic Review, American Economic Association, vol. 84(3), pages 548-65, June.
  10. Ricardo J. Caballero, 1991. "Durable Goods: An Explanation for Their Slow Adjustment," NBER Working Papers 3748, National Bureau of Economic Research, Inc.
  11. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
  12. Ederington, Louis H & Lee, Jae Ha, 1993. " How Markets Process Information: News Releases and Volatility," Journal of Finance, American Finance Association, vol. 48(4), pages 1161-91, September.
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