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Sticky Prices vs. Sticky Information – A Cross-Country Study of Inflation Dynamics

  • Christian Bredemeier
  • Henry Goecke

    ()

This paper empirically compares sticky-price and sticky-information Phillips curves considering inflation dynamics in six countries (US, UK, Germany, France, Canada, and Japan). We evaluate the models‘ abilities to match empirical second moments of inflation. Under baseline calibrations, the two models perform similarly in almost all countries. Under estimated parametrizations, sticky information performs better in France while sticky prices dominate in the UK and Germany. Sticky prices match unconditional moments of inflation dynamics better while sticky information is more successful in matching co-movement of inflation with demand. Both models‘ performances worsen where inflation dynamics diff er from the US benchmark.

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Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0255.

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Length: 37 pages
Date of creation: Apr 2011
Date of revision:
Handle: RePEc:rwi:repape:0255
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  1. Jean-Philippe Laforte, 2007. "Pricing Models: A Bayesian DSGE Approach for the U.S. Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 127-154, 02.
  2. 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.
  3. Christopher D. Carroll, 2003. "Macroeconomic Expectations of Households and Professional Forecasters," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 269-298.
  4. Olivier Coibion, 2007. "Testing the Sticky Information Phillips Curve," Working Papers 61, Department of Economics, College of William and Mary.
  5. Michael T. Kiley, 2007. "A Quantitative Comparison of Sticky-Price and Sticky-Information Models of Price Setting," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 101-125, 02.
  6. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1998. "Sticky price models of the business cycle: can the contract multiplier solve the persistence problem?," Staff Report 217, Federal Reserve Bank of Minneapolis.
  7. Reis, Ricardo, 2005. "Inattentive Producers," CEPR Discussion Papers 5393, C.E.P.R. Discussion Papers.
  8. Döpke, Jörg & Dovern, Jonas & Fritsche, Ulrich & Slacalek, Jiri, 2008. "Sticky information Phillips curves: European evidence," Working Paper Series 0930, European Central Bank.
  9. 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.
  10. Javier Andres & J. David López-Salido & Edward Nelson, 2005. "Sticky-price models and the natural rate hypothesis," Working Papers 2005-018, Federal Reserve Bank of St. Louis.
  11. Hashmat Khan & Zhenhua Zhu, 2002. "Estimates of the Sticky-Information Phillips Curve for the United States, Canada, and the United Kingdom," Staff Working Papers 02-19, Bank of Canada.
  12. Oleg Korenok, 2005. "Empirical Comparison of Sticky Price and Sticky Information Models," Macroeconomics 0510004, EconWPA.
  13. Bill Dupor & Tomiyuki Kitamura & Takayuki Tsuruga, 2010. "Integrating Sticky Prices and Sticky Information," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 657-669, August.
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