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Sticky Price versus Sticky Information Price: Empirical Evidence in the New Keynesian Setting

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  • Drissi, Ramzi
  • Ghassan, Hassan B.

Abstract

In order to model the inflation dynamics, we investigated various combinations of nominal rigidities. For this purpose, we analyze two adjustment-of-prices hypotheses as in the new Keynesian literature, namely the price stickiness and the sticky information, within a Dynamic Stochastic General Equilibrium (DSGE) model. For each model, we compare the responses of inflation and output to shocks. We found that sticky information modeling correctly reproduces some important stylized facts after monetary shocks, but with hump-shaped responses. The sticky price model, considering that some fixed prices lead to that Phillips curve, does not correctly reproduce the dynamic inflation response to monetary shocks. We show that single indexation does not add persistence to the two specifications, and the choice of rigidity structure appears to be more important than the presence or absence of lagged values of inflation in the dynamics.

Suggested Citation

  • Drissi, Ramzi & Ghassan, Hassan B., 2018. "Sticky Price versus Sticky Information Price: Empirical Evidence in the New Keynesian Setting," MPRA Paper 95174, University Library of Munich, Germany, revised Apr 2019.
  • Handle: RePEc:pra:mprapa:95174
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    More about this item

    Keywords

    DSGE model; Phillips curve; Sticky information; Sticky prices; Inflation;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • 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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