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

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  • Michael Kiley

Abstract

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

Suggested Citation

  • Michael Kiley, 2005. "A Quantitative Comparison Of Sticky-Price And Sticky-Information Models Of Price Setting," Computing in Economics and Finance 2005 183, Society for Computational Economics.
    • Handle: RePEc:sce:scecf5:183
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    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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