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A Hybrid Sticky-Price and Sticky-Information Model

  • Bruchez, Pierre-Alain

This paper shows that a hybrid of the sticky-price and sticky-information models of price adjustment is able to deliver a hump-shaped inflation response to monetary shocks without counterfactually implying, as in Mankiw and Reis (2002) or Altig et al. (2005), that individual firms' prices change each quarter (whether they respond or not to the shock). Under the assumption that firms' price-setting decisions are strategically neutral, the inflation response to a transitory shock to the money-supply growth rate is hump-shaped for the hybrid model, whereas it is monotonic for both the sticky-price and sticky information models. If the shock is permanent, then this response is hump-shaped for the sticky-information and the hybrid models, whereas it is flat for the sticky-price model.

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File URL: http://mpra.ub.uni-muenchen.de/3540/1/MPRA_paper_3540.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3540.

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Date of creation: 02 Apr 2007
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Handle: RePEc:pra:mprapa:3540
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  1. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2000. "Sticky Price Models of the Business Cycle: Can the Contract Multiplier Solve the Persistence Problem?," Econometrica, Econometric Society, vol. 68(5), pages 1151-1180, September.
  2. Collard, Fabrice & Dellas, Harris, 2004. "The New Keynesian Model with Imperfect Information and Learning," IDEI Working Papers 273, Institut d'Économie Industrielle (IDEI), Toulouse.
  3. Jonathan L. Willis & Peter J. Klenow, 2007. "Real Rigidities and Nominal Price Changes," 2007 Meeting Papers 844, Society for Economic Dynamics.
  4. 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.
  5. Emmanuel Dhyne & Luis J. Álvarez & Hervé Le Bihan & Giovanni Veronese & Daniel Dias & Johannes Hoffmann & Nicole Jonker & Patrick Lünnemann & Fabio Rumler & Jouko Vilmunen, 2005. "Price setting in the euro area: Some stylized facts from Individual Consumer Price Data," Working Paper Research 74, National Bank of Belgium.
  6. Oleg Korenok, 2005. "Empirical Comparison of Sticky Price and Sticky Information Models," Macroeconomics 0510004, EconWPA.
  7. Peter J. Klenow & Oleksiy Kryvtsov, 2007. "State-Dependent or Time-Dependent Pricing: Does It Matter for Recent U.S. Inflation?," Discussion Papers 07-007, Stanford Institute for Economic Policy Research.
  8. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," NBER Working Papers 8403, National Bureau of Economic Research, Inc.
  9. Jean-Philippe Laforte, 2005. "Pricing models: a Bayesian DSGE approach to the U.S. economy," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  10. Laurence Ball, 2000. "Near-Rationality and Inflation in Two Monetary Regimes," NBER Working Papers 7988, National Bureau of Economic Research, Inc.
  11. N. Gregory Mankiw & Ricardo Augusto Marc Rocha Reis & Justin Wolfers, 2004. "Disagreement about Inflation Expectations," Yale School of Management Working Papers ysm391, Yale School of Management.
  12. Altig, David E & Christiano, Lawrence J. & Eichenbaum, Martin & Lindé, Jesper, 2005. "Firm-Specific Capital, Nominal Rigidities and the Business Cycle," CEPR Discussion Papers 4858, C.E.P.R. Discussion Papers.
  13. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
  14. Benjamin D. Keen, 2007. "Sticky Price And Sticky Information Price-Setting Models: What Is The Difference?," Economic Inquiry, Western Economic Association International, vol. 45(4), pages 770-786, October.
  15. Trabandt, Mathias, 2003. "Sticky Information vs. Sticky Prices : A Horse Race in a DSGE Framework," SFB 373 Discussion Papers 2003,41, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  16. David Altig & Lawrence Christiano & Martin Eichenbaum & Jesper Linde, 2005. "Online Appendix to "Firm-Specific Capital, Nominal Rigidities and the Business Cycle"," Technical Appendices 09-191, Review of Economic Dynamics.
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  19. repec:nbr:nberre:0126 is not listed on IDEAS
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  23. Alan S. Blinder, 1994. "On Sticky Prices: Academic Theories Meet the Real World," NBER Chapters, in: Monetary Policy, pages 117-154 National Bureau of Economic Research, Inc.
  24. Michael T. Kiley, 1996. "Endogenous price stickiness and business cycle persistence," Finance and Economics Discussion Series 96-23, Board of Governors of the Federal Reserve System (U.S.).
  25. Klenow, Peter J. & Willis, Jonathan L., 2007. "Sticky information and sticky prices," Journal of Monetary Economics, Elsevier, vol. 54(Supplemen), pages 79-99, September.
  26. Laurence Ball & David Romer, 1987. "Real Rigidities and the Non-Neutrality of Money," NBER Working Papers 2476, National Bureau of Economic Research, Inc.
  27. Oleg Korenok & Norman R. Swanson, 2007. "How Sticky Is Sticky Enough? A Distributional and Impulse Response Analysis of New Keynesian DSGE Models," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(6), pages 1481-1508, 09.
  28. Minford, Patrick & Peel, David, 2004. "Calvo Contracts: A Critique," CEPR Discussion Papers 4288, C.E.P.R. Discussion Papers.
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