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A Quantitative Comparison Of Sticky-Price And Sticky-Information Models Of Price Setting

  • Michael Kiley

This paper presents baseline sticky-price and sticky-information models of price-setting, and modifies each to incorporate some “rule-of-thumb†price-setters that index to inflation over recent periods. These models are estimated for the United States via maximum-likelihood techniques. While the baseline sticky-information model generates a bit more endogenous inertia in inflation than the baseline sticky-price model, its overall fit is worse. The results point toward substantial gains in terms of fit for hybrid models with indexation that smoothes through quarterly volatility in inflation and clarify the relative performance of recent sticky-information models proposed in the literature

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2005 with number 183.

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Date of creation: 11 Nov 2005
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Handle: RePEc:sce:scecf5:183
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  1. Jordi Galí & Mark Gertler & J. David López-Salido, 2001. "Robustness of the Estimates of the Hybrid New Keynesian Phillips Curve," Working Papers 44, Barcelona Graduate School of Economics.
  2. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper 0107, Federal Reserve Bank of Cleveland.
  3. Christopher D Carroll, 2001. "The Epidemiology of Macroeconomic Expectations," Economics Working Paper Archive 462, The Johns Hopkins University,Department of Economics.
  4. Jeremy Rudd & Karl Whelan, 2006. "Can Rational Expectations Sticky-Price Models Explain Inflation Dynamics?," American Economic Review, American Economic Association, vol. 96(1), pages 303-320, March.
  5. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information Versus Sticky Prices: A Proposal To Replace The New Keynesian Phillips Curve," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1295-1328, November.
  6. Brock,W.A. & Durlauf,S.N. & West,K.D., 2003. "Policy evaluation in uncertain economic environments," Working papers 15, Wisconsin Madison - Social Systems.
  7. Rudd, Jeremy & Whelan, Karl, 2005. "New tests of the new-Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1167-1181, September.
  8. Michael Kumhof & Douglas Laxton, 2005. "A Rational Expectations Model of Optimal Inflation Inertia," Computing in Economics and Finance 2005 429, Society for Computational Economics.
  9. John M. Roberts, 1994. "Is inflation sticky?," Working Paper Series / Economic Activity Section 152, Board of Governors of the Federal Reserve System (U.S.).
  10. N. Gregory Mankiw & Ricardo Reis & Justin Wolfers, 2003. "Disagreement about Inflation Expectations," NBER Working Papers 9796, National Bureau of Economic Research, Inc.
  11. Xavier Sala-I-Martin & Gernot Doppelhofer & Ronald I. Miller, 2004. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," American Economic Review, American Economic Association, vol. 94(4), pages 813-835, September.
  12. Lawrence Slifman & Carol Corrado, 1999. "Decomposition of Productivity and Unit Costs," American Economic Review, American Economic Association, vol. 89(2), pages 328-332, May.
  13. 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.
  14. Jeff Fuhrer, 2005. "Intrinsic and inherited inflation persistence," Working Papers 05-8, Federal Reserve Bank of Boston.
  15. Jeff Fuhrer & George Moore, 1993. "Inflation persistence," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  16. Jeremy Rudd & Karl Whelan, 2007. "Modeling Inflation Dynamics: A Critical Review of Recent Research," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 155-170, 02.
  17. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
  18. repec:ucn:oapubs:10197/243 is not listed on IDEAS
  19. Leamer, Edward E., 1983. "Model choice and specification analysis," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 1, chapter 5, pages 285-330 Elsevier.
  20. Rudd, Jeremy & Whelan, Karl, 2005. "Does Labor's Share Drive Inflation?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 297-312, April.
  21. repec:ucn:oapubs:10197/239 is not listed on IDEAS
  22. Ma, Adrian, 2002. "GMM estimation of the new Phillips curve," Economics Letters, Elsevier, vol. 76(3), pages 411-417, August.
  23. repec:ucn:oapubs:10197/237 is not listed on IDEAS
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