Kiel Working Papers, Kiel Institute for World Economics
No 1369:
Sticky Information vs. Sticky Prices: A Horse Race in a DSGE Framework
Mathias Trabandt
Abstract: How can we explain the observed behavior of aggregate
inflation in response to e.g. monetary policy changes? Mankiw and Reis
(2002) have proposed sticky information as an alternative to Calvo sticky
prices in order to model the conventional view that i) inflation reacts
with delay and gradually to a monetary policy shock, ii) announced and
credible disinflations are contractionary and iii) inflation accelerates
with vigorous economic activity. I use a fully-fledged DSGE model with
sticky information and compare it to Calvo sticky prices, allowing also for
dynamic inflation indexation as in Christiano, Eichenbaum, and Evans
(2005). I find that sticky information and sticky prices with dynamic
inflation indexation do equally well in my DSGE model in delivering the
conventional view.
Keywords: sticky information, sticky prices, inflation indexation, DSGE; (follow links to similar papers)
JEL-Codes: E0,; E3; (follow links to similar papers)
55 pages, June 2007
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